In: Accounting
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 4,000 units of Supermix plus 20% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 19,000 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 114,000 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 75,000 August 80,000 September 90,000 October 70,000 November 60,000 December 50,000 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.
Solution
Pearl Products Limited | ||||
Production budget | ||||
July | August | September | October | |
Units to be sold | 75000 | 80000 | 90000 | 70000 |
Desired Ending Finished Inventory | 20000 | 22000 | 18000 | 16000 |
Total Units needed | 95000 | 102000 | 108000 | 86000 |
Less : Beginning Finished Inventory | 19000 | 20000 | 22000 | 18000 |
Units to be Produced | 76000 | 82000 | 86000 | 68000 |
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Pearl Products Limited | ||||
Direct Materials Budget | ||||
for the month of------ | ||||
July | August | September | Third Quarter | |
Budgeted production (units) | 76000 | 82000 | 86000 | 244000 |
Materials requirements per unit | 3 | 3 | 3 | 3 |
Materials needed for production (cc) | 228000 | 246000 | 258000 | 732000 |
Budgeted ending inventory (cc.) | 123000 | 129000 | 102000* | 102000 |
Total materials requirements (cc.) | 351000 | 375000 | 360000 | 834000 |
Beginning inventory (cc.) | 114000 | 123000 | 129000 | 114000 |
Materials to be purchased (cc.) | 237000 | 252000 | 231000 | 720000 |
*68000 x 3 x 50%