Question

Exercise 8-10 Production and Direct Materials Budgets (LO8-3, L08-4] 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 2,000 units of Supermix plus 25% of the next month's sales. The finished goods inventory on June 30 is budgeted to be 17,250 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 93,375 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. July August Budgeted Unit Sales 61,800 56, see 76, Bee 56,800 46, 36,08 October Required: 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 Complete this question by entering your answers in the tabs below. Regina 3 production budget for Supermik for the month July August September and getober

Answer 1

1) Production budget

	July	August	September	October
Sales unit	61000	66000	76000	56000
Add: Desired ending inventory	18500	21000	16000	13500
Total	79500	87000	92000	69500
Less: Beginning inventory	-17250	-18500	-21000	-16000
Production units	62250	68500	71000	53500

2) Raw material budget

	July	August	september	Quarter
Production unit	62250	68500	71000	201750
Direct material per unit	3	3	3	3
Direct material needed for production	186750	205500	213000	605250
Add: Desired ending inventory	102750	106500	80250	80250
Total	289500	312000	293250	685500
Less: Beginning inventory	-93375	-102750	-106500	-93375
Direct material purchase	196125	209250	186750	592125