Question

Exercise 8-10 Production and Direct Materials Budgets (L08-3, LO8-4) 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: a. The finished goods inventory on hand at the end of each month must equal 3,000 units of Supermix plus 25% of the next month's sales. The finished goods inventory on June 30 is budgeted to be 19,250 units. b. 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 99,375 cc of solvent H300. c. The company maintains no work in process inventories. A monthly sales budget for Supermix for the third and fourth quarters of the year follows July August September October November December Budgeted Unit Sales 65,000 70,000 80,000 60,000 50.000 40,000 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

Production Budget
	July	August	September	October	November
Budgeted Sales	65,000	70,000	80,000	60,000	50,000
Add: Desired Ending Inventory	20,500	23,000	18,000	15,500
Total Required	85,500	93,000	98,000	75,500
Less: Beginning Inventory	19,250	20,500	23,000	18,000
Required Production	66,250	72,500	75,000	57,500
Direct Material Budget
	July	August	September	Total
Required Production	66,250	72,500	75,000	213,750
Material Per unit	3	3	3	3
Raw material required for production	198,750	217,500	225,000	641,250
Add: Desired Ending Inventory	108,750	112,500	86,250	86,250
Total Required	307,500	330,000	311,250	727,500
Less: Beginning Inventory	99,375	108,750	112,500	99,375
Raw material to be purchased	208,125	221,250	198,750	628,125

2 1 Production Budget July August September October November 3 Budgeted Sales 65000 70000 80000 60000 50000 4 Add: Desired Ending Inventory =3000+25%*C3 =3000+25%*D3 =3000+25%*£3=3000+25%*F3 5 Total Required =SUM(B3:34) =SUM(C3:04) =SUM(D3:04) =SUM(E3:E4) 6 Less: Beginning Inventory 19250 =B4 =C4 =D4 7 Required Production =B5-B6 =C5-C6 =D5-D6 =E5-E6 8 9 Direct Material Budget 10 August September Total 11 Required Production =C7 =D7 =SUM(B11:D11) 12 Material per unit 13 Raw material required for production =B11*B12 =C11*C12 =D11*D12 =E11*E12 14 Add: Desired Ending Inventory =C13/2 =D13/2 =E7*3/2 =D14 15 Total Required =B13+B14 =C13+C14 =D13+D14 =E13+E14 16 Less: Beginning Inventory 99375 =B14 =C14 =B16 17 Raw material to be purchased =B15-B16 =C15-C16 =D15-D16 =E15-E16 July =B7 3 3