Question

Daisy Products Limited of Shenzhen, China, manufactures and distributes toys throughout Southeast Asia.

Three cubic centimetres (cc) of solvent Q80 are required to manufacture each unit of Fineclay, one of the company’s products. The company is now planning raw materials needs for the third quarter, the quarter in which peak sales of Fineclay 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 be equal to 4,350 units of Fineclay plus 20% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 14,500 units.
b.	The raw materials inventory on hand at the end of each month must be equal to one-half of the following month’s production needs for raw materials. The raw materials inventory on June 30 is budgeted to be 78,300 cc of solvent Q80.
c.	The company maintains no work-in-process inventories.
	A sales budget for Fineclay for the last six months of the year follows:

	Budgeted Sales in Units
July		50,750
August		58,000
September		72,500
October		43,500
November		29,000
December		14,500

Required:
1.	Prepare a production budget for Fineclay for the months of July to October.

      

2.	Not available in Connect.

3.	Prepare a budget showing the quantity of solvent Q80 to be purchased for July, August, and September, and for the quarter in total.

       

Answer 1

1
Daisy Products Limited
Production Budget
	July	August	September	October
Budgeted unit sales	50750	58000	72500	43500
Add: Desired ending finished goods inventory	15950	18850	13050	10150
Total needs	66700	76850	85550	53650
Deduct: Beginning finished goods inventory	14500	15950	18850	13050
Required production in units	52200	60900	66700	40600
3
Daisy Products Limited
Raw Material Purchases Budget
	July	August	September	Third Quarter
Production needs (cc)	156600	182700	200100	539400
Add: Desired ending raw materials inventory	91350	100050	60900	60900
Total solvent Q80 needs	247950	282750	261000	600300
Deduct: Beginning raw materials inventory	78300	91350	100050	78300
Solvent Q80 purchases (cc)	169650	191400	160950	522000