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:

1. The finished goods inventory on hand at the end of each month must equal 4,000 units of Supermix plus 25% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 18,250 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 87,375 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	57,000
August	62,000
September	72,000
October	52,000
November	42,000
December	32,000

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.

Require 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 57,000 22,000 17,000 14,500 Add: Desired units of ending finished goods inventory Total needs Less: Units of beginning finished goods inventory Required production in units

Required 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.

	Pearl Products Limited Direct Materials Budget July August September Third Quarter Estimated sales in units of finished goods 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

PRODUCTION BUDGET
			July	Aug	Sep	Oct
Budgeted Sales Units		57,000	62,000	72,000	52,000
Add: Desired Ending Finished inventory	19,500	22,000	17,000	14,500	(42000*25%+4000)
Total Needs		76,500	84,000	89,000	66,500
Less: Beginning Finished Inventory	18,250	19,500	22,000	17,000
Required Production in units	58,250	64,500	67,000	49,500
RAW MATERIAL PURCHASE BUDGET
			July	Aug	Sep	Q-3	Oct
Budgeted Production units	58,250	64,500	67,000	1,89,750	49,500
RM required per unit		3	3	3	3	3
Total RM requiremnt		1,74,750	1,93,500	2,01,000	5,69,250	1,48,500
Add: Desired Ending Inventory	96,750	1,00,500	74,250	74,250
Total needs		2,71,500	2,94,000	2,75,250	6,43,500
Less: Beginning Inventory	87,375	96,750	1,00,500	87,375
Purchase Units		1,84,125	1,97,250	1,74,750	5,56,125