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 3,000 units of Supermix plus 20% of the next month's sales. The finished goods inventory on June 30 is budgeted to be 10,000 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 54,000 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. July August September October November December Budgeted Unit Sales 35,000 40,000 50,000 30,000 20,000 10,000 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.

Answer 1

1	Production budget
		July	August	September	October		November
	Unit sales	35,000	40,000	50,000	30,000		20,000
	Desired ending inventory	11,000	13,000	9,000	7,000		5,000
	Total needed	46,000	53,000	59,000	37,000		25,000
	Less: Beginning inventory	10,000	11,000	13,000	9,000		7,000
	Units produced	36,000	42,000	46,000	28,000		18,000
3	Direct materials purchases budget
		July	August	September	October		November
	Units produced	36,000	42,000	46,000	28,000		18,000
	Direct mat. per unit	3	3	3	3		3
	Production needs	108,000	126,000	138,000	84,000		54,000
	Desired Ending Inventory	63,000	69,000	42,000	27,000
	Total needed	171,000	195,000	180,000	111,000
	Less: Beginning Inventory	54,000	63,000	69,000	42,000
	Direct. mat. to purchase	117,000	132,000	111,000	69,000