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 4,500 units of Fineclay plus 15% of the next month's sales. The finished goods inventory on June 30 is budgeted to be 15,000 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 81,000 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: Budgeted Sales in Units July August September October November 52,500 60,000 75,000 45,000 30,000 15,000 December 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

Answer to Part 1.

DAISY PRODUCTS LIMITED

Production Budget

	July	August	September	October
Budgeted Sales	52500	60000	75000	45000
Add: Desired Ending Inventory	13500	15750	11250	9000
Total Needs	66000	75750	86250	54000
Less: Beginning Inventory	15000	13500	15750	11250
Required Production	51000	62250	70500	42750

Ending Inventory = 4,500 + (Following Months sales * 15%)

Answer to Part 3.

DAISY PRODUCTS LIMITED

Raw Materials Purchses Budget

	July	August	September	Third Quarter
Required Production	51000	62250	70500	183750
Materials needed per unit	3	3	3	3
Production needs (cc)	153000	186750	211500	551250
Add: Desired Ending Inventory	93375	105750	64125	64125
Total Solvent Q80 needs	246375	292500	275625	615375
Less: Beginning Inventory	81000	93375	105750	81000
Raw Materials to be purchased	165375	199125	169875	534375