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: a. 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 17,250 units. b. 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 93,375 cc of solvent H300. c. The company maintains no work in process inventories. A monthly sales budget for Supermix for the third and fourth quarters of the year follows. July August September October November December Budgeted Unit Sales 61,000 66,000 76,000 56,000 46,000 36,000 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. Complete this question by entering your answers in the tabs below.

Answer 1

Required 1) Pearl Production Limited Production Budget July August Budgeted unit sales 61,000 66,000 Add: Desired units of ending finished goods inventory 18,500 21,000 Total Needs 79,500 87,000 Less: Units of beginning finished goods inventory 17,250 18,500 Required production in units 62,250 68,500 September 76,000 16,000 92,000 21,000 71,000 October 56,000 13,500 69,500 16,000 53,500 Working Notes Calculation of Desired units of ending finished Goods July (2,000 + 66,000 x 25%) August (2,000 + 76,000 x 25%) September (2,000 + 56,000 x 25%) October (2,000 + 46,000 x 25%) 18,500 21,000 16,000 13,500

Required 3) Required production in units of finished goods Units of raw materials needed per unit of finished goods unit of finished goods Units of raw materials needed to meet production Add: Desired units of ending raw materials inventory Total units of raw materials needed Less: Units of beginning raw materials inventory Units of raw materials to be purchased Pearl Production Limited Direct materials Budget July 62,250 - 3cc 186,750 102,750 289,500 93,375 196,125 August 68,500 3 CC 205,500 106,500 312,000 102,750 209,250 September 71,000 3 CC 213,000 80,250 293,250 106,500 Third Quarter 201,750 3 CC 605,250 80,250 685,500 93,375 592,125 186,750 Working Notes Calculation of October Production Required production in units of finished goods Units of raw materials needed per unit of finished goods Units of raw materials needed to meet production 53,500 CC 160,500 Calculation of Desired ending units of raw materials July (205,500 / 2) August (213,000/2) September (160,500/2) 102,750 106,500 80,250