Pearl Products Limitedof Shenzhen, China, manufactures and distributes toys throughoutSouth East Asia. Three cubic centimeters (cc) of solvent H300 arerequired to manufacture each unit of Supermix, one of the company’sproducts. The company is now planning raw materials needs for thethird quarter, the quarter in which peak sales of Supermix occur.To keep production and sales moving smoothly, the company has thefollowing inventory requirements:
a. The finished goodsinventory on hand at the end of each month must be equal to 4,000units of Supermix plus 20% of the next month’s sales. The finishedgoods inventory on June 30 is budgeted to be 19,000 units.
b. The raw materialsinventory on hand at the end of each month must be equal toone-half of the following month’s production needs for rawmaterials. The raw materials inventory on June 30 is budgeted to be94,000 cc of solvent H300.
c. The companymaintains no work in process inventories.
A sales budget forSupermix for the last six months of the year follows.
| BudgetedSales
in Units |
| July | 75,000 |
| August | 80,000 |
| September | 90,000 |
| October | 70,000 |
| November | 60,000 |
| December | 50,000 |
|
Required:
1. Prepare aproduction budget for Supermix for the months July, August,September, and October.
3. Prepare a directmaterials budget showing the quantity of solvent H300 to bepurchased for July, August, and September, and for the quarter intotal.
