Question

Pearl Products Limited of Shenzhen, China, manufactures and distributes toys throughout Southeast 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 16,250 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 81,375 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 53,000 58,000 68,000 48,000 38,000 28,000 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 Total needs Required production in units

Answer 1

Pearl Products Limited Production Budget
	July	August	September	October
Budgeted unit sales	53,000	58,000	68,000	48,000
Add: Desired units of ending finished goods inventory                ( $ 3,000 + 25% of Next month Unit Sales )	17,500	20,000	15,000	12,500
Total needs	70,500	78,000	$ 83,000	60,500
Less: Units of beginning finished goods inventory                 ( 30% x Budgeted Unit Sales + $ 3,000 )	-16,250	-17,500	-20,000	-15,000
Required production in units	54,250	$ 60,500	$ 63,000	$ 45,500

Pearl Products Limited Direct Materials Budget
	July	August	September	Third Quarter
Budgeted production (units)	54,250	$ 60,500	$ 63,000
X Materials requirements per unit	3	3	3
Units of raw materials needed to meet production	162,750	181,500	189,000	533,250
Add: Desired units of ending raw materials inventory               ( Half of next month production need )	90,750 ( $ 181,500 / 2 )	94,500	68,250	68,250
Total units of raw materials needed	253,500	276,000	257,250	475500
Less: Units of beginning raw materials inventory	(81,375) ( 162,750 / 2 )	-90,750	-94,500	-81,375
Units of raw materials to be purchased	172,125	185,250	162,750	520,125