Pearl Products Limited of Shenzhen, China, manufactures and distributes toys thr
ID: 2393961 • 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 4,000 units of Supermix plus 25% of the next month's sales. The finished goods inventory on June 30 is budgeted to be 18,250 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 87,375 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 57,000 62,000 72,000 52,000 42,000 32,000 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
57000
62000
72000
52000
(+) Estimated Ending Inventory
[4000 + (62000* 25%)]
=19500
[4000 + (72000 * 25%)]
=22000
[4000 + (52000 * 25%)]
=17000
[4000 + (42000 * 25%)]
=14500
Total Needs
76500
84000
89000
66500
(-) Estimated Beginning Inventory
18250
19500
22000
17000
Required Production
58250
64500
67000
49500
(3) Direct Material Budget :-
July
August
September
Third Quarter
Required Production of finished goods
58250
64500
67000
189750
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
174750
193500
201000
569250
(+) Ending Inventory
(193500/2)
=96750
(201000/2)
=100500
*(148500/2)
=74250
Total units of raw materials needed
271500
294000
275250
840750
(-) Beginning Inventory
87375
96750
100500
Units of raw materials to be purchased
184125
197250
174750
556125
*October Production needs = 49500 * 3 = 148500
July
August
September
October
Budgeted Unit Sales
57000
62000
72000
52000
(+) Estimated Ending Inventory
[4000 + (62000* 25%)]
=19500
[4000 + (72000 * 25%)]
=22000
[4000 + (52000 * 25%)]
=17000
[4000 + (42000 * 25%)]
=14500
Total Needs
76500
84000
89000
66500
(-) Estimated Beginning Inventory
18250
19500
22000
17000
Required Production
58250
64500
67000
49500
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