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 3,000 units of Supermix plus 20% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 10,000 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 54,000 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	35,000
August	40,000
September	50,000
October	30,000
November	20,000
December	10,000

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.

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 35,000 40,000 50,000 30,000 Add: Desired units of ending finished goods inventory 11,000 13,000 9,000 7,000 Total needs 46,000 53,000 59,000 37,000 Less: Units of beginning finished goods inventory 10,000 11,000 13,000 9,000 Required production in units 36,000 42,000 46,000 28,000

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 Required production in units of finished goods Units of raw materials needed per unit of finished goods 3 cc 3 cc 3 cc 3 cc Units of raw materials needed to meet production Add: Desired units of ending raw materials inventory Total units of raw materials needed Units of raw materials to be purchased

Answer 1

Solution

Pearl Products Limited
Production budget
	July	August	September	October
Units to be sold	35000	40000	50000	30000
Desired Ending Finished Inventory	11000	13000	9000	7000
Total Units needed	46000	53000	59000	37000
Less : Beginning Finished Inventory	10000	11000	13000	9000
Units to be Produced	36000	42000	46000	28000

.

Pearl Products Limited
Direct Materials Budget
for the month of------
	July	August	September	Third Quarter
Budgeted production (units)	36000	42000	46000	124000
Materials requirements per unit	3	3	3	3
Materials needed for production (cc)	108000	126000	138000	372000
Budgeted ending inventory (cc.)	63000	69000	42000*	42000
Total materials requirements (cc.)	171000	195000	180000	414000
Beginning inventory (cc.)	54000	63000	69000	54000
Materials to be purchased (cc.)	117000	132000	111000	360000

*28000 x 3 x 50%