Pearl Products Limited of Shenzhen, China, manufactures and distributes toys thr
ID: 2413759 • 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:
The finished goods inventory on hand at the end of each month must equal 2,000 units of Supermix plus 25% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 17,250 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 93,375 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.
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.
Budgeted Unit Sales July 61,000 August 66,000 September 76,000 October 56,000 November 46,000 December 36,000Explanation / Answer
(1).
Production Budget
July
August
September
October
Budgeted sales (units)
61000
66000
76000
56000
Add: Desired ending inventory
18500
21000
16000
13500
Total need
79500
87000
92000
69500
Less: Beginning inventory
17250
18500
21000
16000
Required production
62250
68500
71000
53500
(2).
Direct materials budget
July
August
September
Quarter
Required production (units)
62250
68500
71000
201750
Material H300 needed per unit
3
3
3
3
Production needs
186750
205500
213000
605250
Add: Desired ending inventory
102750
106500
80250
80250
Total material H300 needs
289500
312000
293250
685500
Less: Beginning inventory
93375
102750
106500
93375
Material H300 purchases
196125
209250
186750
592125
Production Budget
July
August
September
October
Budgeted sales (units)
61000
66000
76000
56000
Add: Desired ending inventory
18500
21000
16000
13500
Total need
79500
87000
92000
69500
Less: Beginning inventory
17250
18500
21000
16000
Required production
62250
68500
71000
53500
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