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: The finished goods inventory on hand at the end of each month must equal 3,000 units of Supermix plus 20% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 17,200 units. 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 108,000 cc of solvent H300. 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	71,000
August	76,000
September	86,000
October	66,000
November	56,000
December	46,000

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.

Complete this question by entering your answers in the tabs below. Required 1 Required 3 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 0076,00086,00066,000 Total needs Required production in units Required Required 3>

Answer 1

Required Budgets are as prepared below:

Pearl products Limited
Production Budget
	Month
Particulars	July	August	Sep	Oct
Sales	71,000	76,000	86,000	66,000
Add: Finished Goods Ending inventory	18,200	20,200	16,200	14,200
Total needs
Less: Beginning Finished goods inventory	17,200	18,200	20,200	16,200
Required production in units	72,000	78,000	82,000	64,000
Pearl products Limited
Direct Material Budget
	July	August	September	Third Quarter	Oct
Planned production units (a)	72,000	78,000	82,000	232,000	64,000
Units of raw material needed per unit of finished goods	3.0	3.0	3.0	3.0	3
Units of raw material needed to meet production	216,000	234,000	246,000	696,000	192,000
Budgeted ending Direct Material (d)	117,000	123,000	96,000	336,000
Total units of raw material needed	333,000	357,000	342,000	1,032,000
Beginning Direct Material (e )	108,000	117,000	123,000	96,000
Units of raw material to be purchased	225,000	240,000	219,000	936,000

Working:

Finished Goods
Ending Inventory
July	3,000+20% of 76,000	18,200
August	3,000+20% of 86,000	20,200
September	3,000+20% of 66,000	16,200
October	3,000+20% of 56,000	14,200
Beginning Inventory
July	Given in question	17,200
August	Ending inventory of July	18,200
September	Ending inventory of August	20,200
October	Ending inventory of September	16,200
Raw material
Ending Inventory
July	1/2 of 234,000	117,000
August	1/2 of 246,000	123,000
September	1/2 of 192,000	96,000
Beginning Inventory
July	Given in question	108,000
August	Ending inventory of July	117,000
September	Ending inventory of August	123,000