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 3,000 units of Supermix plus 25% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 13,250 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 63,375 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 41,000 August 46,000 September 56,000 October 36,000 November 26,000 December 16,000 Required: 1. Prepare a production budget for Supermix for the months July, August, September, and October

Pearl Products Limited
Production Budget
	July	August	September	October
Budgeted unit sales
Total needs
Required production in units

. 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.

Pearl Products Limited
Direct Materials Budget
	July		August		September		Third Quarter
Units of raw materials needed per unit of finished goods		cc		cc		cc		cc
Units of raw materials needed to meet production
Total units of raw materials needed
Units of raw materials to be purchased

Answer 1

November 26000 Budgeted sales Add: Desired ending inventory Total needs Less: Beginning inventory Required production Pearl Products Limited Production Budget July August 41000 46000 14500 17000 55500 63000 13250 14500 42250 48500 September Third Quarter 56000 143000 12000 12000 68000 155000 17000 13250 51000 141750 October 36000 9500 45500 12000 33500 September Third Quarter 51000 141750 | October 33500 Pearl Products Limited Direct Materials Budget July August Required production in units of finished goods 42250 48500 Units of raw materials needed per unit of finished goods Units of raw materials needed to meet production 126750 145500 Add: Desired ending raw materials inventory 72750 76500 Total units of raw materials needed 199500 222000 Less: Beginning raw materials inventory 63375 72750 Units of raw materials to be purchased 136125 149250 100500 153000 50250 203250 76500 126750 425250 50250 475500 63375 412125