Question

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: The finished goods inventory on hand at the end of each month must equal 3,000 units of Supermix plus 25% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 19,250 units. 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 99,375 cc of solvent H300. 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 65,000 August 70,000 September 80,000 October 60,000 November 50,000 December 40,000 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.

Prepare a production budget for Supermix for the months July, August, September, and October.

	Pearl Products Limited Production Budget July August September October Budgeted unit sales Total needs Required production in units

	Pearl Products Limited Direct Materials Budget July August September Third Quarter Units of raw materials needed per unit of finished goods cc cc cc cc Units of raw materials needed to meet production Total units of raw materials needed Units of raw materials to be purchased

Answer 1

1)	Pearl Products Limited
	Production Budget
		July	August	September	October	Nov
	Budgeted Unit Sales	65,000	70,000	80,000	60,000	50,000
	Add: Desired units of ending finished goods inventory	20,500	23,000	18,000	15,500	13,000
	Total Needs	85,500	93,000	98,000	75,500	63,000
	Less: Units of beginning finished goods inventory	19,250	20,500	23,000	18,000	15,500
	Required production in Units	66,250	72,500	75,000	57,500	47,500
3)	Pearl Products Limited
	Direct Material Budget
		July	August	September	October	Nov
	Required production in Units of finished goods	66,250	72,500	75,000	57,500	47,500
	Units of raw material needed per Units of finished goods	3	3	3	3	3
	Units of raw material needed to meet production	198,750	217,500	225,000	172,500	142,500
	Add: Desired units of ending raw material inventory	108,750	112,500	86,250	71,250
	Total units of raw material inventory needed	307,500	330,000	311,250	243,750
	Less: Units of beginning raw material inventory	99,375	108,750	112,500	86,250
	units of raw materials to be purchased	208,125	221,250	198,750	157,500