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ch 7 exer #6 Pearl Products Limited of Shenzhen, China, manufactures and distributes toys throughout South...

ch 7 exer #6

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 is now 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:

a.

The finished goods inventory on hand at the end of each month must be equal to 2,000 units of Supermix plus 20% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 10,600 units.

b.

The raw materials inventory on hand at the end of each month must be equal to one-half of the following month’s production needs for raw materials. The raw materials inventory on June 30 is budgeted to be 66,000 cc of solvent H300.

c. The company maintains no work in process inventories.

A sales budget for Supermix for the last six months of the year follows.

Budgeted Sales
in Units
  July 43,000
  August 48,000
  September 58,000
  October 38,000
  November 28,000
  December 18,000

Required:
a.

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
b.

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 to meet production
Total units of raw materials needed
Units of raw materials to be purchased

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