Pearl Products Limited of Shenzhen, China, manufactures and distributes toys thr
ID: 2584561 • Letter: P
Question
Pearl Products Limited of Shenzhen, China, manufactures and distributes toys throughout South East Asia. Three cubic centimeters (cc) of solvent H300 are required to manufacture each unit of Supermix, one of the company’s products. The company now is planning raw materials needs for the third quarter, the quarter in which peak sales of Supermix occur. To keep production and sales moving smoothly, the company has the following inventory requirements:
The finished goods inventory on hand at the end of each month must equal 2,000 units of Supermix plus 25% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 20,250 units.
The raw materials inventory on hand at the end of each month must equal one-half of the following month’s production needs for raw materials. The raw materials inventory on June 30 is budgeted to be 111,375 cc of solvent H300.
The company maintains no work in process inventories.
A monthly sales budget for Supermix for the third and fourth quarters of the year follows.
Required:
1. Prepare a production budget for Supermix for the months July, August, September, and October.
3. Prepare a direct materials budget showing the quantity of solvent H300 to be purchased for July, August, and September, and for the quarter in total.
Budgeted Unit Sales July 73,000 August 78,000 September 88,000 October 68,000 November 58,000 December 48,000Explanation / Answer
Answer:
1
Prepare a production budget for Supermix for the months July, August, September, and October
production budget for Supermix
July
August
Sept
Oct
Budgeted unit sales
73,000
78,000
88,000
68,000
Add:Desired units of ending finished goods
21,500
24,000
19,000
16,500
total needs
94,500
102,000
107,000
84,500
less units of Beginning finished goods invent
=(ending of last month)
-20,250
-21,500
-24,000
-19,000
Required production in units
74,250
80,500
83,000
65,500
Working notes for the answer:
Calculation of the Desired units of ending finished goods
July
August
Sept
Oct
fixed units
2,000
2,000
2,000
2,000
25% of next months sales
19500
22000
17000
14500
total
21,500
24,000
19,000
16,500
________________________________________________________________________
Direct materials budget
July
August
Sept
Qtr
units of raw materials needed
222750
241500
249000
713250
Add :ending inventor
120,750
124,500
98,250
98,250
total units of raw materials needed
343500
366000
347250
811500
less units of beginning raw materials
-111,375
-120,750
-124,500
-92,000
units of raw materials to be purchased
232,125
245,250
222,750
700,125
July
August
Sept
Oct
Budgeted unit sales
73,000
78,000
88,000
68,000
Add:Desired units of ending finished goods
21,500
24,000
19,000
16,500
total needs
94,500
102,000
107,000
84,500
less units of Beginning finished goods invent
=(ending of last month)
-20,250
-21,500
-24,000
-19,000
Required production in units
74,250
80,500
83,000
65,500
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