Question

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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 is now 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 be equal to 2,000 units of Supermix plus 25% of the next month's sales. The finished goods inventory on June 30 is budgeted to be 11,250 units. b. The raw materials inventory on hand at the end of each month must be equal to one-half of the following month's production needs for raw materials. The raw materials inventory on June 30 is budgeted to be 56,000 cc of solvent H300. C. The company maintains no work in process inventories. A sales budget for Supermix for the last six months of the year follows. July August September October November December Budgeted Sales in Units 37,000 42.000 52,000 32,000 22,000 12,000 Required: 1. 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

Answer 1

1
Pearl Products Limited
Production Budget
	July	August	September	October
Budgeted unit sales	37000	42000	52000	32000
Add: Desired units of ending finished goods inventory	12500	15000	10000	7500
Total needs	49500	57000	62000	39500
Less: Units of beginning finished goods inventory	11250	12500	15000	10000
Required production in units	38250	44500	47000	29500
3
Pearl Products Limited
Direct Materials Budget
	July	August	September	Third Quarter
Units of raw materials needed to meet production	114750	133500	141000	389250
Add: Desired units of ending raw materials inventory	66750	70500	44250	44250
Total units of raw materials needed	181500	204000	185250	433500
Less: Units of beginning raw materials inventory	56000	66750	70500	56000
Units of raw materials to be purchased	125500	137250	114750	377500
Workings:
Desired units of ending finished goods inventory
July = 2000+(42000*25%)= 12500
August = 2000+(52000*25%)= 15000
September = 2000+(32000*25%)= 10000
October = 2000+(22000*25%)= 7500
Units of raw materials needed to meet production:
July = 38250*3 = 114750
August = 44500*3 = 133500
September = 47000*3 = 141000
Desired units of ending raw materials inventory:
July = 133500*50% = 66750
August = 141000*50% = 70500
September = 29500*3*50%=44250