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:

1. The finished goods inventory on hand at the end of each month must equal 2,000 units of Supermix plus 20% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 13,000 units.

2. 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 84,000 cc of solvent H300.

3. 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	55,000
   August	60,000
   September	70,000
   October	50,000
   November	40,000
   December	30,000

   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.

4. Complete this question by entering your answers in the tabs below

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

	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

1
Pearl Products Limited
Production Budget
	July	August	September	October
Budgeted unit sales	55000	60000	70000	50000
Add: Desired units of ending finished goods inventory	14000	16000	12000	10000
Total needs	69000	76000	82000	60000
Less: Units of beginning finished goods inventory	13000	14000	16000	12000
Required production in units	56000	62000	66000	48000
3
Pearl Products Limited
Direct Materials Budget
	July	August	September	Third Quarter
Required production in units	56000	62000	66000	184000
Units of raw materials needed per unit of finished goods	3	3	3	3
Units of raw materials needed to meet production	168000	186000	198000	552000
Add: Desired units of ending raw materials inventory	93000	99000	72000	72000
Total units of raw materials needed	261000	285000	270000	624000
Less: Units of beginning raw materials inventory	84000	93000	99000	84000
Units of raw materials to be purchased	177000	192000	171000	540000