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 14,250 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 75,375 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	49,000
August	54,000
September	64,000
October	44,000
November	34,000
December	24,000

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.

Pearl Products Limited
Production Budget
	July	August	September	October
Budgeted unit sales
Total needs
Required production in units

Pearl Products Limited
Direct Materials Budget
	July		August		September		Third Quarter
Units of raw materials needed per unit of finished goods		cc		cc		cc		cc
Units of raw materials needed to meet production
Total units of raw materials needed
Units of raw materials to be purchased

Answer 1

	Production Budget
			July	august	September	October
Expected sale units			49,000	54,000	64,000	44,000
Add:ending inventory			15500	18000	13000	10500
total needs			64,500	72,000	77,000	54,500
less opening inventory			14,250	15,500	18,000	13,000
total production required			50,250	56,500	59,000	41,500

	Direct materials budget
			July	august	September	total
total production required			50,250	56,500	59,000	165,750
cubic centimeters required per unit			3	3	3	3
units of raw materials needed			150750	169500	177000	497250
ending inventory			84750	88500	62,250	62,250
total materials required			235500	258000	239250	559500
less opening inventory			75,375	84,750	88,500	75,375
total materials required			160,125	173,250	150,750	484,125