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 25% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 18,250 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 87,375 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 57,000 August 62,000 September 72,000 October 52,000 November 42,000 December 32,000

Explanation / Answer

Ans :

Production budget

3. Direct material budget

Particulars July August September October November December Sales (A) 57000 62000 72000 52000 42000 32000 Ending Inventory as per policy 4000+25%*62000 4000+25%*72000 4000+25%*52000 4000+25%*42000 4000+25%*32000 Ending Inventory (B) 19500 22000 17000 14500 12000 Opening Inventory(Note 1) (C ) 18250 19500 22000 17000 14500 12000 Production (A+B-C) 58250 64500 67000 49500 39500

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