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 25% of the next month's sales. The finished goods inventory on June 30 is budgeted to be 21,250 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 105,375 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 Budgeted Unit Sales July August September 69,000 74,000 84,000 54.000 November December 44,000

Answer 1

Production budget

	July	August	September	October
Sales Unit	69000	74000	84000	64000
Add: Desired ending inventory	22500	25000	20000	17500
Total	91500	99000	104000	81500
Less: Beginning inventory	-21250	-22500	-25000	-20000
Production Units	70250	76500	79000	61500

Direct material budget

	July	August	September	Quarter
Production Unit	70250	76500	79000	225750
Units of raw material needed per unit of finished goods	3	3	3	3
Units of raw material needed to meet production	210750	229500	237000	677250
Add: Desired ending inventory	114750	118500	92250	92250
Total	325500	348000	329250	769500
Less: Beginning inventory	-105375	-114750	-118500	-105375
Units of raw materials to be purchased	220125	233250	210750	664125