Question

Three cubic centimeters (cc) of solvent H300 are required to manufacture each unit of Supermix, one...

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 4,000 units of Supermix plus 25% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 15,250 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 69,375 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   45,000
August   50,000
September   60,000
October   40,000
November   30,000
December   20,000

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.

Homework Answers

Answer #1

1.

Production budget
July August September October
Budgeted sales 45000 50000 60000 40000
Add: Opening FG inventory 15250 16500 19000 14000
Less: Closing FG inventory (4000 + 25% of next months sale) 16500 19000 14000 11500
Units to be produced 43750 47500 65000 42500

2.

Direct Material Budget
July August September Total
Direct Material required for production (Production * 3) 131250 142500 195000 468750
Add: Closing raw material inventory (0.5 * Requirement) 71250 97500 63750 232500
Less: Opening raw material inventory 69375 71250 97500 238125
Raw material purchases 133125 168750 161250 463125
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