Question

Daisy Products Limited of Shenzhen, China, manufactures and distributes toys throughout Southeast Asia. Three cubic centimetres (cc) of solvent Q80 are required to manufacture each unit of Fineclay, 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 Fineclay 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 4,200 units of Fineclay plus 15% of the next month's sales. The finished goods inventory on June 30 is budgeted to be 14,000 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 75,600 cc of solvent Q80. c. The company maintains no work-in-process inventories. A sales budget for Fineclay for the last six months of the year follows: July August September October November December Budgeted Sales in Units 49,000 56,000 70,000 42,000 28,000 14,000 Required: 1. Prepare a production budget for Fineclay for the months of July to October. DAISY PRODUCTS LIMITED Production Budget July August September October Total needs

Answer 1

1
Daisy Products Limited
Production Budget
	July	August	September	October
Budgeted unit sales	49000	56000	70000	42000
Add: Desired ending inventory	12600	14700	10500	8400
Total needs	61600	70700	80500	50400
Less: Beginning inventory	14000	12600	14700	10500
Required production in units	47600	58100	65800	39900
3
Daisy Products Limited
Raw material Purchases Budget
	July	August	September	Third Quarter
Production needs (cc)	142800	174300	197400	514500
Add: Desired units of ending raw materials inventory	87150	98700	59850	59850
Total solvent Q80 needs	229950	273000	257250	574350
Less: Units of beginning raw materials inventory	75600	87150	98700	75600
Solvent Q80 purchases (cc)	154350	185850	158550	498750