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 is now 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 be equal to 4,000 units of supermix plus 25% of the next month’s sales. the finished goods inventory on june 30 is budgeted to be 21,250 units.

b.
the raw materials inventory on hand at the end of each month must be equal to one-half of the following month’s production needs for raw materials. the raw materials inventory on june 30 is budgeted to be 88,000 cc of solvent h300.

c. the company maintains no work in process inventories.
a sales budget for supermix for the last six months of the year follows.
budgeted sales
in units
july 69,000
august 74,000
september 84,000
october 64,000
november 54,000
december 44,000

required:

1.
prepare a production budget for supermix for the months july, august, september, and october.

2.
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.

1. Pearl Products Limited's Production Budget for Supermix for the months of July, August, September, and October

                                       July           August      September     October

Sales in units              69,000        74,000          84,000         64,000

Ending Inventory        22,500       25,000          20,000          17,500

Total units required   82,500       99,000        104,000         81,500

Beginning Inventory   21,250       22,500          25,000        20,000

Production Units       61,250       76,500           79,000        61,250

2. Pearl Products Limited's Direct Materials Budget for Solvent H300 for the quarter:

                                             July         August         September         Total

Solvent H300 required    183,750     229,500       239,000        652,250

Ending Inventory              114,750       119,500           91,875         326,125  

Total materials               298,500      349,000        330,875        978,375

Beginning Inventory        88,000        114,750         119,500        322,250  

Purchases of H300      210,500      234,250         211,375        656,125

Data and Calculations:

Sales Budget and Production Budget

                         July      August September October  November December

Sales in units  69,000  74,000     84,000     64,000     54,000      44,000

Ending

 Inventory      22,500  25,000    20,000      17,500      15,000

Total units

 required      82,500  99,000   104,000     81,500     69,000  

Beginning

 Inventory      21,250  22,500    25,000     20,000      17,500

Production    61,250  76,500    79,000      61,250      51,500

Raw materials Inventory:

                                  July        August   September    October    November

Production Units     61,250      76,500       79,000      61,250         51,500

Raw materials (1 unit = 3cc of H300)

 required              183,750   229,500     239,000    183,750       154,500

Ending Inventory  114,750     119,500         91,875     77,250

Total materials   298,500   349,000       330,875   261,000

Beginning

Inventory             88,000     114,750        119,500      91,875

Purchases         210,500   234,250        211,375    169,125

Thus, the production units are as given above, while the units to be purchased of H300 are also indicated.

Learn more about preparing the production budget at link

Pearl Products Limited of Shenzhen, China

Finished Goods Production Budget

For the months of     July      August    Sept      October   November     Dec

Units required to        51,750    55500    63,000   48,000    40,500   33,000

meet Sales budget

Desired Ending          22,500   37,600   20,000   17,500    15,000    *15,000*

Inventory

Total Units Req.         74,500    93,100    83,000   65,500    55,500   48,000

Less Estimated

Beg. Inventory            21,250     22,500    37,600    20,000  17,500    15,000

Planned Production   53,250    70,600     45,400  45,500  38,000  33,000

Explanation:

Working Notes:

Units required to meet Sales budget is calculated by multiplying 3/4 of the given months sales as 25 % of it is already included in that months opening inventory . For example July's unit required to meet sales budget would be 69,000 * 3/4= 51,750

Each month's beginning inventory is previous month's ending inventory

As no data for sales budget of January is given the desired ending inventory is taken on the basis of previous months desired inventory.

Pearl Products Limited of Shenzhen, China

Direct Materials Budget

For the months of     July      August    Sept      October   November     Dec

Units to Meet

Production Budget   159,750  211,800  136,200 136,500  114,000

Desired Ending         105,900  68,100    68,250   57,000    49,500

Inventory

Less Beginning

Inventory                   88,000   105,900   68,100    68,250    57,000

Direct Materials

Budget                     177,650     174,000   136,350   125,250  106,500

Explanation:

Working Notes:

Each finished goods units requires 3 units of direct material . The units to meet the production budget are estimated by multiplying them with 3. for example the July Production budget is 53,250 so it is multiplied with 3 to get the direct material required and 53,250 *3= 159,750

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