Question

In: Accounting

Pearl Products Limited of Shenzhen, China, manufactures and distributes toys throughout South East Asia. Three cubic...

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 25% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 17,250 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 93,375 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 61,000
August 66,000
September 76,000
October 56,000
November 46,000
December 36,000

Required:

1. 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

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.

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

Solutions

Expert Solution

Requirement 1

Pearl Products Limited
Production budget
July August September October
Units to be sold 61000 66000 76000 56000
Desired Ending Finished Inventory 18500 21000 16000 13500
Total Units needed 79500 87000 92000 69500
Less : Beginning Finished Inventory 17250 18500 21000 16000
Units to be Produced 62250 68500 71000 53500

Requirement 3

Pearl Products Limited
Direct Materials Budget
for the month of------
July August September Third Quarter
Budgeted production (units) 62250 68500 71000 201750
Materials requirements per unit 3 3 3 3
Materials needed for production (cc) 186750 205500 213000 605250
Budgeted ending inventory (cc.) 102750 106500 80250* 80250
Total materials requirements (cc.) 289500 312000 293250 685500
Beginning inventory (cc.) 93375 102750 106500 93375
Materials to be purchased (cc.) 196125 209250 186750 592125

*53500 x 3 x 50%


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