Daisy Products Limited of Shenzhen, China, manufactures and distributes toys thr
ID: 2471384 • Letter: D
Question
Daisy Products Limited of Shenzhen, China, manufactures and distributes toys throughout Southeast Asia.
Three cubic centimetres (cc) of solvent Q80 is required to manufacture each unit of Fineclay, 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 Fineclay 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 3,750 units of Fineclay plus 20% of the next month's sales. The finished goods inventory on June 30 is budgeted to be 12,500 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 67,500 cc of solvent Q80.
The company maintains no work-in-process inventories.
A sales budget for Fineclay for the last six months of the year follows:
Required:
Prepare a production budget for Fineclay for the months of July to October.
Examine the production budget that you prepared in part (1). Why will the company produce
more units than it sells in July and August, and fewer units than it sells in September and
October?
Prepare a budget showing the quantity of solvent Q80 to be purchased for July, August, and
September, and for the quarter in total.
Explanation / Answer
Production Budget:
The sales and production in July to August are higher than the next two months because, the quarter July to August is the peak season for the company and the sales as well as the production are expected to rise in comparison to the other moths.
b)
Raw material requirement budget:
Particulars July August September October November December Budgeted sales (units) 43750 50000 62500 37500 25000 12500 Ending Inventory: 3750 + 20% of next month's sales 13750 16250 11250 8750 6250 Total requirement (Units) 57500 66250 73750 46250 31250 Less: beginning inventory 12500 13750 16250 11250 8750 Required production (units) 45000 52500 57500 35000 22500Related Questions
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