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 3,000 units of Supermix plus 20% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 14,800 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 90,000 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	59,000
August	64,000
September	74,000
October	54,000
November	44,000
December	34,000

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

Production Budget						W/Note
Particulars	July	Aug	Sep	Oct	Total	Nov
Sales	59,000	64,000	74,000	54,000	2,51,000	44,000
Estimated Closing Stock	15,800	17,800	13,800	11,800	11,800	9800
Less: Opening Stock	14,800	15,800	17,800	13,800	14,800	11,800
Estimated Production	60,000	66,000	70,000	52,000	2,48,000	42,000

Raw Material Purchase Budget
Particulars	July	Aug	Sep	Total
Estimated Production unit	59,000	64,000	74,000	1,97,000
Material Require/ Unit	3	3	3	3
Material Require in Cubic Centimetr (a)	1,77,000	1,92,000	2,22,000	5,91,000
Estimated Closing Stock (1/2 of next Month)	96,000	1,11,000	81,000	81,000
Less: Opening Stock©	90,000	96,000	1,11,000	90,000
Purchase(a+b-c)	1,83,000	2,07,000	1,92,000	5,82,000