Question

Exercise 8-10 Production and Direct Materials Budgets [LO8-3, LO8-4] 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 3,000 units of Supermix plus 20% of the next month's sales. The finished goods inventory on June 30 is budgeted to be 14,800 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 90,000 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 59,000 64,000 74,000 54,000 44,000 34,000 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

November 44000 Budgeted sales Add: Desired ending inventory Total needs Less: Beginning inventory Required production Pearl Products Limited Production Budget July August 59000 64000 15 800 17800 74800 81800 14800 15 800 60000 66000 September Third Quarter 74000 197000 13800 13800 87800 210800 17800 14800 70000 196000 October 54000 11800 65800 13800 52000 Pearl Products Limited Direct Materials Budget July August Required production in units of finished goods 60000 66000 Units of raw materials needed per unit of finished goods 3 3 Units of raw materials needed to meet production 180000 198000 Add: Desired ending raw materials inventory 99000 105000 Total units of raw materials needed 279000 303000 Less: Beginning raw materials inventory 90000 99000 Units of raw materials to be purchased 189000 204000 September Third Quarter 70000 196000 3 3 210000 588000 78000 78000 288000 666000 October 52000 3 156000 105000 183000 90000 576000