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 2,000 units of Supermix plus 25% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 17,250 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 93,375 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 61,000 August 66,000 September 76,000 October 56,000 November 46,000 December 36,000 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

Production budget for supermix
	july	august	september	october
Opening balance(a)	17250	18500	21000	16000
sales(b)	61000	66000	76000	56000
Closing balance(c)	18500	21000	16000	13500
	(2000+(66000*.25)	2000+(76000*.25)	2000+(56000*0.25)	2000+(46000*0.25)
Production Required(b+c-a)	62250	68500	71000	53500
Direct material purchase budget
	july	august	september	Total for quater
Opening balance(a)	93375	102750	106500	302625
Material required(b)	186750	205500	213000	605250
	62250*3	68500*3	71000*3
Closing balance(c) following mnth production/2	102750	106500	80250	289500
	205500/2	213000/2	160500/2
Direct material purchase (b+c-a)	196125	209250	186750	592125