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:

1. 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.

2. 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.

3. 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.

looks like this

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

• Required 1

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.

looks like this

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.

	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

Solution 1:
Pearl Products Limited
Production Budget
Particulars	July	August	September	October
Budgeted unit sales	65000	70000	80000	60000
Add: Desired Ending Inventory	20500	23000	18000	15500
Total needs	85500	93000	98000	75500
Less: Beginning inventory	19250	20500	23000	18000
Required production in units	66250	72500	75000	57500

Solution 3:
Pearl Products Limited
Direct Materials Budget
Particulars	July	August	September	Third Quarter
Budgeted Production Units	66250	72500	75000	213750
Units of raw materials needed per unit of finished goods (in cc)	3	3	3	3
Units of raw materials needed to meet production (In cc)	198750	217500	225000	641250
Add: Desired Ending inventory of raw materials	108750	112500	86250	86250
Total units of raw materials needed	307500	330000	311250	727500
Less: Beginning inventory of raw materials	99375	108750	112500	99375
Units of raw materials to be purchased (In cc)	208125	221250	198750	628125