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 is now 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 be equal to 3,000 units of Supermix plus 20% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 12,400 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 72,000 cc of solvent H300.
c.	The company maintains no work in process inventories.

A sales budget for Supermix for the last six months of the year follows.

	Budgeted Sales in Units
July	47,000
August	52,000
September	62,000
October	42,000
November	32,000
December	22,000
Required: 1. Prepare a production budget for Supermix for the months July, August, September, and October. Pearl Products Limited Production Budget August September October July Budgeted unit sales Total needs Required production in units 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. Pearl Products Limited Direct Materials Budget August September Third Quarter July Units of raw materials needed to meet production Total units of raw materials needed Units of raw materials to be purchased

Answer 1

1
Pearl Products Limited
Production Budget
	July	August	September	October
Budgeted unit sales	47000	52000	62000	42000
Add: Desired units of ending finished goods inventory	13400	15400	11400	9400
Total needs	60400	67400	73400	51400
Less: Units of beginning finished goods inventory	12400	13400	15400	11400
Required production in units	48000	54000	58000	40000
3
Pearl Products Limited
Direct Materials Budget
	July	August	September	Third Quarter
Units of raw materials needed to meet production	144000	162000	174000	480000
Add: Desired units of ending raw materials inventory	81000	87000	60000	60000
Total units of raw materials needed	225000	249000	234000	540000
Less: Units of beginning raw materials inventory	72000	81000	87000	72000
Units of raw materials to be purchased	153000	168000	147000	468000