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 18,250 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 87,375 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	57,000
August	62,000
September	72,000
October	52,000
November	42,000
December	32,000

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 production budget for Supermix for the months July, August, September, and October.

	Pearl Products Limited Production Budget July August September October Budgeted unit sales    (FILL IN) Total needs (FILL IN) Required production in units

Pearl Products Limited Direct Materials Budget July August September Third Quarter FILL IN    Units of raw materials needed per unit of finished goods cc cc cc cc Units of raw materials needed to meet production FILL IN Total units of raw materials needed Fill in Units of raw materials to be purchased

Answer 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 57000 62000 72000 52000 Desired ending inventory 19500 22000 17000 14500 Total needs 76500 84000 89000 66500 Beginning inventory -18250 -19500 -22000 -17000 Required production in units 58250 64500 67000 49500

Pearl Products Limited Direct Materials Budget July August September Third Quarter Required production in units 58250   64500 67000 189750 Units of raw materials needed per unit of finished goods 3 cc 3 3 3 Units of raw materials needed to meet production 174750 193500 201000 569250 Desired ending inventory 96750 100500 74250 74250 Total units of raw materials needed 271500 294000 275250 643500 Beginning inventory -87375 -96750 -100500 -87375 Units of raw materials to be purchased 184125 197250 174750 556125