Pearl Products Limited of Shenzhen, China, manufactures and distributes toys thr

Question

Pearl Products Limited of Shenzhen, China, manufactures and distributes toys throughout South East Asia. Five 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: a. The finished goods inventory on hand at the end of each month must be equal to 5,000 units of Supermix plus 35% of the next month's sales. The finished goods inventory on June 30 is budgeted to be 19,000 units. b. 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 87,000 cc of solvent H300. c. The company maintains no work in process inventories. A sales budget for Supermix for the last six months of the year follows. Budgeted Sales in Units July 40,000 August 50,000 September 70,000 October 35,000 November 20,000 December 10,000 Requirement 1: Prepare a production budget for Supermix for the months July, August, September, and October. (Input all amounts as positive values.) July August September October Budgeted sales: 40000 50000 70000 35000 Less/Add: Desired ending inventory 22500 29500 17250 12000 Total needs 62500 79500 87250 47000 Less/Add: Beginning inventory 19000 22500 29500 17250 Required production 43500 57000 57750 29750 Requirement 2: 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. (Input all amounts as positive values.) July August September Third Quarter Production needs (Click to select)AddLess: Desired ending inventory Total Material H300 needs Less/Add: Beginning inventory Material H300 purchases

Explanation / Answer

Production needs = Required production*5 (since each product needs 5cc of H300) desired ending inventory = 0.5*following months production need begging inventory = previous month's ending inventory July August September third quarter production needs 217500 285000 288750 791250 desired ending inventory 142500 144375 74375 361250 Total Material H300 needs 360000 429375 363125 1152500 Less: Beginning inventory 87000 142500 144375 373875 Material H300 purchases 273000 286875 218750 778625

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