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:

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.

Answer 1

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