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 4,000 units of Supermix plus 20% of the next month's sales. The finished goods inventory on June 30 is budgeted to be 14,200 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 78,000 cc of solvent H300 c. The company maintains 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 October 51,000 56,000 66,000 46,000 36,000 26,000 November December 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
Pearl Products Limited
Production Budget
	July	August	September	October
Budgeted unit sales	51000	56000	66000	46000
Add: Desired units of ending finished goods inventory	15200	17200	13200	11200
Total needs	66200	73200	79200	57200
Less: Units of beginning finished goods inventory	14200	15200	17200	13200
Required production in units	52000	58000	62000	44000
3
Pearl Products Limited
Direct Materials Budget
	July	August	September	Third Quarter
Required production in units of finished goods	52000	58000	62000	172000
Units of raw materials needed per unit of finished goods	3	3	3	3
Units of raw materials needed to meet production	156000	174000	186000	516000
Add: Desired units of ending raw materials inventory	87000	93000	66000	66000
Total units of raw materials needed	243000	267000	252000	582000
Less: Units of beginning raw materials inventory	78000	87000	93000	78000
Units of raw materials to be purchased	165000	180000	159000	504000