Pearl Products Limited of Shenzhen, China, manufactures and distributes toys thr
ID: 2346474 • Letter: P
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 is now 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 be equal to 5,000 units of Supermix plus 26% of the next month's sales. The finished goods inventory on June 30 is budgeted to be 14,620 units.
The raw materials inventory on hand at the end of each month must be equal to one-half of the following month's production needs for raw materials. The raw materials inventory on June 30 is budgeted to be 59,400 cc of solvent H300.
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 is now 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:
Explanation / Answer
production budget
July
August
September
October
Budgeted sales
37000
47000
67000
32000
Add desired ending inv
17220
22420
13320
9420
total needs
54220
69420
80320
41420
Subtract beginning inv.
14620
17220
22420
13320
required production
39600
52200
57900
28100
Desired inventory = 5000 + 26% of next months sales
For example, August desired ending inventory = 5000 + 0.26*67000 = 22420
Beginning inventory is the previous month’s ending inventory
For example September’s beginning inventory is equal to August’s ending inventory
direct materials budget
July
August
September
Thrid quarter
production needs
118800
156600
173700
449100
add desired ending inv
78300
86850
42150
42150
total material h300 needs
197100
243450
215850
491250
subtract beginning inv
59400
78300
86850
59400
material h300 purchases
137700
165150
129000
431850
Production needs is found by multiply required production * 3 cc per unit.
For example July’s production needs = 39,600 * 3 = 118,800
Ending inventory is one-half of next month’s production needs
For example, August’s ending inventory = 0.5*173700 = 86,850
Beginning inventory is the previous month’s ending inventory
For example, September’s beginning inventory is equal to August’s ending inventory
For the third quarter column, beginning inventory is July’s beginning inventory, and ending inventory is September’s ending inventory
production budget
July
August
September
October
Budgeted sales
37000
47000
67000
32000
Add desired ending inv
17220
22420
13320
9420
total needs
54220
69420
80320
41420
Subtract beginning inv.
14620
17220
22420
13320
required production
39600
52200
57900
28100
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