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: The finished goods inventory on hand at the end of each month must equal 2,000 units of Supermix plus 25% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 14,250 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 75,375 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 49,000 August 54,000 September 64,000 October 44,000 November 34,000 December 24,000 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

Solution 1:
Pearl Products Limited
Production Budget
Particulars	July	August	September	October
Budgeted unit sales	49000	54000	64000	44000
Add: Desired Ending Inventory	15500	18000	13000	10500
Total needs	64500	72000	77000	54500
Less: Beginning inventory	14250	15500	18000	13000
Required production in units	50250	56500	59000	41500

Solution 3:
Pearl Products Limited
Direct Materials Budget
Particulars	July	August	September	Third Quarter
Budgeted Production Units	50250	56500	59000	165750
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)	150750	169500	177000	497250
Add: Desired Ending inventory of raw materials	84750	88500	62250	62250
Total units of raw materials needed	235500	258000	239250	559500
Less: Beginning inventory of raw materials	75375	84750	88500	75375
Units of raw materials to be purchased (In cc)	160125	173250	150750	484125