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 4,000 units of Supermix plus 20% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 14,200 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 78,000 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	51,000
August	56,000
September	66,000
October	46,000
November	36,000
December	26,000

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

	July	August	September	October
Budgeted Sales	51,000	56,000	66,000	46,000
Add: Desired Ending Inventory	15,200	17,200	13,200	11,200
Total Needs	66,200	73,200	79,200	57,200
Less:Beginning Inventory	14,200	15,200	17,200	13,200
Required Production	52,000	58,000	62,000	44,000
	July	August	September	Third Quarter
Production Needs	156,000	174,000	186,000	516,000
Add: Desired Ending Inventory	87,000	93,000	66,000	246,000
Total Material H300 Needs	243,000	267,000	252,000	762,000
Less:Beginning Inventory	78,000	87,000	93,000	258,000
Material H300 Purchases	165,000	180,000	159,000	504,000