Question

In: Accounting

Pearl Products Limited of Shenzhen, China, manufactures and distributes toys throughout South East Asia. Three cubic...

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:

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.

Solutions

Expert Solution

1
Pearl Products Limited
Production Budget
July August September October
Budgeted unit sales 65000 70000 80000 60000
Add: Desired units of ending finished goods inventory 20500 23000 18000 15500
Total needs 85500 93000 98000 75500
Less: Units of beginning finished goods inventory 19250 20500 23000 18000
Required production in units 66250 72500 75000 57500
3
Pearl Products Limited
Direct Materials Budget
July August September Third Quarter
Units of raw materials needed to meet production 198750 217500 225000 641250
Add: Desired units of ending raw materials inventory 108750 112500 86250 86250
Total units of raw materials needed 307500 330000 311250 727500
Less: Units of beginning raw materials inventory 99375 108750 112500 99375
Units of raw materials to be purchased 208125 221250 198750 628125

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