Pearl Products Limited of Shenzhen, China, manufactures and distributes toys thr
ID: 2393280 • 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 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 a. The finished goods inventory on hand at the end of each month must equal 3,000 units of Supermix plus 20% of the next month's sales. The finished goods inventory on June 30 is budgeted to be 17,200 units b. 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 108,000 cc of solvent H300. C. The company maintains no work in process inventories. A monthly sales budget for Supermix for the third and fourth quarters of the year follows July August September October November December Budgeted Unit Sales 71,000 76,000 86,000 66,000 56,000 46,000 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 totalExplanation / Answer
(1) Production Budget :-
July
August
September
October
Budgeted Unit Sales
71000
76000
86000
66000
(+) Estimated Ending Inventory
[3000 + (76000 * 20%)]
=18200
[3000 + (86000 * 20%)]
=20200
[3000 + (66000 * 20%)]
=16200
[3000 + (56000 * 20%)]
=14200
Total Needs
89200
96200
102200
80200
(-) Estimated Beginning Inventory
17200
18200
20200
16200
Required Production
72000
78000
82000
64000
(2) Direct Material Budget :-
July
August
September
Third Quarter
Required Production of finished goods
72000
78000
82000
232000
Units of raw materials needed per unit of finished goods
3 cc
3 cc
3 cc
3 cc
Units of raw materials needed to meet production
216000
234000
246000
696000
(+) Ending Inventory
(234000/2)
=117000
(246000/2)
=123000
*(192000/2)
=96000
Total units of raw materials needed
333000
357000
342000
1032000
(-) Beginning Inventory
108000
117000
123000
Units of raw materials to be purchased
225000
240000
219000
684000
*October Production needs = 64000 * 3 = 192000
July
August
September
October
Budgeted Unit Sales
71000
76000
86000
66000
(+) Estimated Ending Inventory
[3000 + (76000 * 20%)]
=18200
[3000 + (86000 * 20%)]
=20200
[3000 + (66000 * 20%)]
=16200
[3000 + (56000 * 20%)]
=14200
Total Needs
89200
96200
102200
80200
(-) Estimated Beginning Inventory
17200
18200
20200
16200
Required Production
72000
78000
82000
64000
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