Question

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 2,000 units of Supermix plus 20% of the next month's sales. The finished goods inventory on June 30 is budgeted to be 15.400 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 102,000 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 67.000 72.000 32.000 62.000 52,000 42.000 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

Production	June	July	August	September	October	November	December
units sold		67,000	72,000	82,000	62,000	52,000	42,000
Ending finished goods inventory in units (2000+(next month's units sold * 20%))	15,400	16,400	18,400	14,400	12,400	10,400
Units Produced		68,000	74,000	78,000	60,000
Material needed for production (unit produced * 3)		204,000	222,000	234,000	180,000
ending raw material ( Next month's Material required for Production of finished goods * 50%)	102,000	111,000	117,000	90,000

Answer 1
Production Budget
	July	August	September	October
Units sold	67,000	72,000	82,000	62,000
Add: ending finished goods inventory	16,400	18,400	14,400	12,400
Units available for sale	83,400	90,400	96,400	74,400
Less: Beginning finished goods inventory	15,400	16,400	18,400	14,400
Units Produced	68,000	74,000	78,000	60,000

Answer 3
Material Budget
	July	August	September	Third Quarter
Units Produced	68,000	74,000	78,000	220,000
Multiply: Material quantity per finished units	3	3	3	3
Material needed for production	204,000	222,000	234,000	660,000
Add: ending raw material in CC	111,000	117,000	90,000	90,000
Raw material available for use	315,000	339,000	324,000	750,000
Less: Beginning raw material in CC	102,000	111,000	117,000	102,000
Purchase of Solvent 300 in CC	213,000	228,000	207,000	648,000