Question

Pearl Products Limited of Shenzhen, China, manufactures and distributes toys throughout Southeast 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 20,250 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 111,375 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. Budgeted Unit Sales July 73,000 August 78,000 September 88,000 October 68,000 November 58,000 December 48,000

Answer 1

1
Pearl Products Limited
Production Budget
	July	August	September	October
Budgeted unit sales	73000	78000	88000	68000
Add: Desired units of ending finished goods inventory	21500	24000	19000	16500
Total needs	94500	102000	107000	84500
Less: Units of beginning finished goods inventory	20250	21500	24000	19000
Required production in units	74250	80500	83000	65500
3
Pearl Products Limited
Direct Materials Budget
	July	August	September	Third Quarter
Required production in units	74250	80500	83000	237750
Units of raw materials needed per unit of finished goods	3	3	3	3
Units of raw materials needed to meet production	222750	241500	249000	713250
Add: Desired units of ending raw materials inventory	120750	124500	98250	98250
Total units of raw materials needed	343500	366000	347250	811500
Less: Units of beginning raw materials inventory	111375	120750	124500	111375
Units of raw materials to be purchased	232125	245250	222750	700125