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 15,250 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 69,375 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	45,000
August	50,000
September	60,000
October	40,000
November	30,000
December	20,000

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.

Answer 1

Answer-1)-

Pearl Products
Production Budget
Particulars	July	August	September	October	Total
Estimated sales (a)	45000	50000	60000	40000	195000
Add:- Desired ending finished goods inventory (b)	4000 units+(50000*25%)=16500	4000 units+(60000*25%)=19000	4000 units+(40000*25%)=14000	4000 units+(30000*25%)=11500	61000
25% of the next month's sales needs
Less:-Opening finished goods inventory (c)	15250	16500	19000	14000	64750
Number of units to be produced (d=a+b-c)	46250	52500	55000	37500	191250

3)-

Pearl Products
Direct Material Purchase Budget
	Quarter
Particluars	July	August	September	Quarter
Production units (a)	46250	52500	55000	153750
Cubic centimeters required each unit of raw material (b)	3 cc	3 cc	3 cc	3 cc
Total Cubic centimeters required (c =a*b)	138750	157500	165000	461250
Add:- Closing Inventory 50% of next month production units	157500 cc*50%= 78750 cc	165000 cc*50%= 82500 cc	112500 cc*50%= 56250 cc	217500
Less:- Opening Inventory cc	69375	78750	82500	230625
Direct material purchase (in cc)	148125	161250	138750	448125