Question

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

Answer 1