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 2,000 units of Supermix plus 20% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 13,000 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 84,000 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	55,000
August	60,000
September	70,000
October	50,000
November	40,000
December	30,000

Required:

1. Prepare a production budget for Supermix for the months July, August, September, and October.

2. 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 Total needs Required production in units

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 Units of raw materials needed per unit of finished goods cc cc cc cc Units of raw materials needed to meet production Total units of raw materials needed Units of raw materials to be purchased

Answer 1

	Pearls Products Limited
	Production Budget
		Jul	Aug	Sep	Oct		Nov	Dec
	Budgeted Unit Sales	55,000	60,000	70,000	50,000		40,000	30,000
	Add: Desired Closing Units (2000+20%*Next Month Sales)	14,000	16,000	12,000	10,000		8,000
	Total Required Units	69,000	76,000	82,000	60,000		48,000
	Less: Opening Units	13,000	14,000	16,000	12,000		10,000
	Production Budget	56,000	62,000	66,000	48,000		38,000
	Pearls Products Limited
	Direct Material Budget
		Jul	Aug	Sep	Quarter		Nov
	Production Budget	56,000	62,000	66,000	184,000		38,000
	Units Required PU of FG	3	3	3	3		3
	Units Required for FG Production-Total	168,000	186,000	198,000	552,000		114,000
	Add: Desired Closing Units (1/2 of Required Production)	93,000	99,000	57,000	57,000
	Total Units Required	261,000	285,000	255,000	609,000
	Less: Opening Units	84,000	93,000	99,000	84,000
	Direct Material Budget	177,000	192,000	156,000	525,000