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: 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 Budgeted Unit Sales 57,000 62,000 72,000 52,000 42,000 32,000

Explanation / Answer

Required Budgets are as prepared below:

Working:

Pearl products Limited Production Budget For the quarter ended September 30 Month Particulars July August Sep Total Oct Sales 57,000 62,000 72,000 191,000 52,000 Add: Finished Goods Ending inventory 19,500 22,000 17,000 17,000 14,500 Less: Beginning Finished goods inventory 18,250 19,500 22,000 18,250 17,000 Required production in units 58,250 64,500 67,000 189,750 49,500 Pearl products Limited Merchandise Purchase Budget For the quarter ended September 30 Month Particulars July August Sep Total Oct Planned production units (a) 58,250 64,500 67,000 189,750 49,500 *Direct Material H 300 required per unit (b) 3.0 3.0 3.0 3.0 3 Direct Material Required for production (c ) 174,750 193,500 201,000 569,250 148500 Budgeted ending Direct Material (d) 96,750 100,500 74,250 74,250 Beginning Direct Material (e ) 87,375 96,750 100,500 87,375 Budgeted direct material purchase f= c+d-e 184,125 197,250 174,750 556,125

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