Question

Daisy Products Limited of Shenzhen, China, manufactures and distributes toys throughout Southeast Asia.

Three cubic centimetres (cc) of solvent Q80 are required to manufacture each unit of Fineclay, one of the company’s products. The company is now planning raw materials needs for the third quarter, the quarter in which peak sales of Fineclay occur. To keep production and sales moving smoothly, the company has the following inventory requirements:

a.	The finished goods inventory on hand at the end of each month must be equal to 3,150 units of Fineclay plus 20% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 10,500 units.
b.	The raw materials inventory on hand at the end of each month must be equal to one-half of the following month’s production needs for raw materials. The raw materials inventory on June 30 is budgeted to be 56,700 cc of solvent Q80.
c.	The company maintains no work-in-process inventories.
	A sales budget for Fineclay for the last six months of the year follows:

	Budgeted Sales in Units
July		36,750
August		42,000
September		52,500
October		31,500
November		21,000
December		10,500

Required:
1.	Prepare a production budget for Fineclay for the months of July to October.

      

2.	Not available in Connect.

3.	Prepare a budget showing the quantity of solvent Q80 to be purchased for July, August, and September, and for the quarter in total.

       

Answer 1

Solution 1:
Daisy Products Limited
Production Budget
Particulars	July	August	September	October
Budgeted unit sales	36750	42000	52500	31500
Add: Desired Ending Inventory	11550	13650	9450	7350
Total needs	48300	55650	61950	38850
Less: Beginning inventory	10500	11550	13650	9450
Required production in units	37800	44100	48300	29400

Solution 3:
Daisy Products Limited
Direct Materials Budget
Particulars	July	August	September	Third Quarter
Budgeted Production Units	37800	44100	48300	130200
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)	113400	132300	144900	390600
Add: Desired Ending inventory of raw materials	66150	72450	44100	44100
Total units of raw materials needed	179550	204750	189000	434700
Less: Beginning inventory of raw materials	56700	66150	72450	56700
Units of raw materials to be purchased (In cc)	122850	138600	116550	378000