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 4,000 units of Supermix plus 25% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 21,250 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 105,375 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	69,000
August	74,000
September	84,000
October	64,000
November	54,000
December	44,000

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.

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 Required production in units of finished goods Units of raw materials needed per unit of finished goods cc cc cc cc Units of raw materials needed to meet production Add: Desired units of ending raw materials inventory Total units of raw materials needed Units of raw materials to be purchased

• Required 1

Answer 1

Note:- October details are taken to calculate ending raw materials inventory of 92,250