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 3,000 units of Supermix plus 25% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 16,250 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 81,375 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 53,000 August 58,000 September 68,000 October 48,000 November 38,000 December 28,000 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
			July	Aug	Sep	QUARTER	Oct	Nov
Budgeted Sales Units			53,000	58,000	68,000	179,000	48,000	38,000
Add: Desired Ending Finished inventory			17,500	20,000	15,000	15,000	12,500
Total Needs			70,500	78,000	83,000	194,000	60,500
Less: Beginning Finished Inventory			16,250	17,500	20,000	16,250	15,000
Required Production in units			54,250	60,500	63,000	177,750	45,500
RAW MATERIAL PURCHASE BUDGET
			July	Aug	Sep	QUARTER	Oct
Budgeted Production units			54,250	60,500	63,000	177,750	45,500
Raw material required per unit			3	3	3	3	3
Total Production needs			162,750	181,500	189,000	533,250	136,500
Add: Desired Ending Inventory			90,750	94,500	68,250	68,250
Total needs			253,500	276,000	257,250	601,500
Less: Beginning Inventory			81,375	90,750	94,500	81,375
Purchase Units			172,125	185,250	162,750	520,125