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 4,000 units of Supermix plus 25% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 15,250 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 69,375 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. Budgeted Unit Sales July 45,000 August 50,000 September 60,000 October 40,000 November 30,000 December 20,000 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.

Required 1 Required 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. August September Third Quarter Pearl Products Limited Direct Materials Budget July Estimated sales in units of finished goods Units of raw materials needed per unit of finished goods | cc Units of raw materials needed to meet production Total units of raw materials needed 69,375 Units of raw materials to be purchased < Required 1 Required 3 )

Answer 1

1
Pearl Products Limited
Production Budget
	July	August	September	October
Budgeted unit sales	45000	50000	60000	40000
Add: Desired units of ending finished goods inventory	16500	19000	14000	11500
Total needs	61500	69000	74000	51500
Less: Units of beginning finished goods inventory	15250	16500	19000	14000
Required production in units	46250	52500	55000	37500
3
Pearl Products Limited
Direct Materials Budget
	July	August	September	Third Quarter
Required production in units of finished goods	46250	52500	55000	153750
Units of raw materials needed per unit of finished goods	3	3	3	3
Units of raw materials needed to meet production	138750	157500	165000	461250
Add: Desired units of ending raw materials inventory	78750	82500	56250	56250
Total units of raw materials needed	217500	240000	221250	517500
Less: Units of beginning raw materials inventory	69375	78750	82500	69375
Units of raw materials to be purchased	148125	161250	138750	448125