Question

Exerclse 8-10 Production and Direct Materlals Budgets [LO8-3, LO8-4] 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 3,000 units of Supermix plus 20 % of the next month's sales. The finished goods inventory on June 30 is budgeted to be 14,800 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 90,000 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 August September S9,eee 64,000 74,000 54,0ee 44,ee0 34,00e October November December Requlred: 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. Required 1 Required 3 Prepare a production budget for Supermix for the months July, August. September, and October Prey 1 of 5 Next

Answer 1

Requirement 1

Pearl Products Limited
Production budget
	July	August	September	October
Units to be sold	59000	64000	74000	54000
Desired Ending Finished Inventory	15800	17800	13800	11800*
Total Units needed	74800	81800	87800	65800
Less : Beginning Finished Inventory	14800	15800	17800	13800
Units to be Produced	60000	66000	70000	52000

*44000 x 20% +(3000)

Requirement 2

Pearl Products Limited
Direct Materials Budget
for the month of------
	July	August	September	Third Quarter
Budgeted production (units)	60000	66000	70000	196000
Materials requirements per unit	3	3	3	3
Materials needed for production (cc)	180000	198000	210000	588000
Budgeted ending inventory (cc.)	99000	105000	78000	78000
Total materials requirements (cc.)	279000	303000	288000	666000
Beginning inventory (cc.)	90000	99000	105000	90000
Materials to be purchased (cc.)	189000	204000	183000	576000