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 3,000 units of Supermix plus 25% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 16,250 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 81,375 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. Budgeted Unit Sales July 53,000 August 58,000 September 68,000 October 48,000 November 38,000 December 28,000 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.

Explanation / Answer

Calculation:

Budgeted ending raw material inventory for September = October production 45500 x 3 cc x 50% = 68250

Pearl Products Limited Production Budget for Supermix For the Months of July to October July August September October November Budgeted sales in units 53000 58000 68000 48000 38000 Desired ending FG inventory as percent of following month's budgeted sales units 25% 25% 25% 25% Ending inventory 14500 17000 12000 9500 Additional inventory required 3000 3000 3000 3000 Add: Total ending inventory 17500 20000 15000 12500 Required production (units) 70500 78000 83000 60500 Less: Beginning inventory (units) 16250 17500 20000 15000 Budgeted production in units 54250 60500 63000 45500

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