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 2,100 units of Fineclay plus 15% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 7,000 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 37,800 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		24,500
August		28,000
September		35,000
October		21,000
November		14,000
December		7,000

Required:
1.	Prepare a production budget for Fineclay for the months of July to October.
	DAISY PRODUCTS LIMITED Productiiion budget July August September October Tottal needs

      

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.
	DAISY PRODUCTS LIMITED Raw Material purchase Budget July August september Quarter Total Solvent Q80 needs

Answer 1

(1) Production Budget :-

	July	August	September	October
Budgeted Sales (Units)	24500	28000	35000	21000
Add: Desired Ending Inventory	[(2100 + (15% * 28000) =6300	[(2100 + (15% * 35000) =7350	[(2100 + (15% * 21000) =5250	[(2100 + (15% * 14000) =4200
Total Needs	30800	35350	40250	25200
Deduct: Beginning Inventory	7000	6300	7350	5250
Required Production	23800	29050	32900	19950

(3) Raw Material Purchase Budget :-

	July	August	September	Quarter
Units of Raw Materials needed to meet production	(23800 * 3) =71400	(29050 * 3) =87150	(32900 * 3) =98700	257250
Add: Desired Ending Inventory	(87150/2) =43575	(98700/2) =49350	(59850/2) =29925	29925
Total Units of Raw Material needed	114975	136500	128625	287175
Deduct: Beginning Inventory	37800	43575	49350	37800
Units of Raw Material to be purchased	77175	92925	79275	249375