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. 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 4,000 units of Supermix plus 20% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 14,200 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 78,000 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 51,000 August 56,000 September 66,000 October 46,000 November 36,000 December 26,000

Explanation / Answer

July August September October Budgeted Sales      51,000      56,000 66,000 46,000 Add: Desired Ending Inventory      15,200      17,200 13,200 11,200 Total Needs      66,200      73,200 79,200 57,200 Less:Beginning Inventory      14,200      15,200 17,200 13,200 Required Production      52,000      58,000 62,000 44,000 July August September Third Quarter Production Needs    156,000    174,000 186,000 516,000 Add: Desired Ending Inventory      87,000      93,000 66,000 246,000 Total Material H300 Needs    243,000    267,000 252,000 762,000 Less:Beginning Inventory      78,000      87,000 93,000 258,000 Material H300 Purchases    165,000    180,000 159,000 504,000

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