Pearl Products Limited of Shenzhen China manufactures and di

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 3,000 units of Supermix plus 20% of the next month\'s sales. The finished goods inventory on June 30 is budgeted to be 17,200 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 108,000 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 December Budgeted Unit Sales 71,000 76,000 86,000 66,000 56,000 46,000 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

Solution

(1) Production Budget :-

July

August

September

October

Budgeted Unit Sales

71000

76000

86000

66000

(+) Estimated Ending Inventory

[3000 + (76000 * 20%)]

=18200

[3000 + (86000 * 20%)]

=20200

[3000 + (66000 * 20%)]

=16200

[3000 + (56000 * 20%)]

=14200

Total Needs

89200

96200

102200

80200

(-) Estimated Beginning Inventory

17200

18200

20200

16200

Required Production

72000

78000

82000

64000

(2) Direct Material Budget :-

July

August

September

Third Quarter

Required Production of finished goods

72000

78000

82000

232000

Units of raw materials needed per unit of finished goods

3 cc

3 cc

3 cc

3 cc

Units of raw materials needed to meet production

216000

234000

246000

696000

(+) Ending Inventory

(234000/2)

=117000

(246000/2)

=123000

*(192000/2)

=96000

Total units of raw materials needed

333000

357000

342000

1032000

(-) Beginning Inventory

108000

117000

123000

Units of raw materials to be purchased

225000

240000

219000

684000

*October Production needs = 64000 * 3 = 192000

	July	August	September	October
Budgeted Unit Sales	71000	76000	86000	66000
(+) Estimated Ending Inventory	[3000 + (76000 * 20%)] =18200	[3000 + (86000 * 20%)] =20200	[3000 + (66000 * 20%)] =16200	[3000 + (56000 * 20%)] =14200
Total Needs	89200	96200	102200	80200
(-) Estimated Beginning Inventory	17200	18200	20200	16200
Required Production	72000	78000	82000	64000