Question

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.

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