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 2,000 units of Supermix plus 25% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 14,250 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 75,375 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 49,000
August 54,000
September 64,000
October 44,000
November 34,000
December 24,000
a. Prepare a production budget for Supermix for the months July, August, September, and October. (Include Add: Desired units of ending finished goods inventory, Total needs, Less: Units of begginning finished goods inventory, and Required production in units.)
b. 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. (Include Units of raw material needed to meet production, Add: Desired units of ending raw materials inventory, Total units of raw materials needed, Less: Units of beginning raw materials inventory, and Units of raw material to be purchased.)