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:

1. 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 17,200 units.

2. 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 108,000 cc of solvent H300.

3. 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	71,000
August	76,000
September	86,000
October	66,000
November	56,000
December	46,000

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.

Required 1 Required 3 Prepare a production budget for Supermix for the months July, August, September, and October. August October September 86,000 76,000 66,000 Pearl Products Limited Production Budget July Budgeted unit sales 71,000 Add: Desired units of ending finished goods inventory 14,800 Total needs Less: Units of beginning finished goods inventory Required production in units

Answer 1

Answer-1)-

Pearl Products
Production Budget
Particulars	July	August	September	October	Total
Budgeted unit sales (a)	71000	76000	86000	66000	299000
Add:- Desired ending finished goods inventory (b)	3000 units+(76000*20%)=18200	3000 units+(86000*20%)=20200	3000 units+(66000*20%)=16200	3000 units+(56000*20%)=14200	68800
25% of the next month's sales needs
Less:-Opening finished goods inventory (c)	17200	18200	20200	16200	71800
Number of units to be produced (d=a+b-c)	72000	78000	82000	64000	296000

3)-

Pearl Products
Direct Material Purchase Budget
	Quarter
Particluars	July	August	September	Quarter
Production units (a)	72000	78000	82000	232000
Cubic centimeters required each unit of raw material (b)	3 cc	3 cc	3 cc	3 cc
Total Cubic centimeters required (c =a*b)	216000	234000	246000	696000
Add:- Closing Inventory 50% of next month production units	234000 cc*50%= 117000 cc	246000 cc*50%= 123000 cc	192000 cc*50%= 96000 cc	336000
Less:- Opening Inventory cc	108000	117000	123000	348000
Direct material purchase (in cc)	225000	240000	219000	684000