EXERCISE 8–10 Production and Direct Materials Budgets

Anonymous
timer Asked: Jan 4th, 2018
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Question description

EXERCISE 8–10 Production and Direct Materials Budgets LO8–3, LO8–4

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:

  1. The finished goods inventory on hand at the end of each month must equal 2,000 units of Supermix plus 25% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 11,250 units.
  2. 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 57,375 cc of solvent H300.
  3. 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

37,000

August

42,000

September

52,000

October

32,000

November

22,000

December

12,000

Required:

  1. Prepare a production budget for Supermix for the months July, August, September, and October.
  2. Examine the production budget that you prepared in (1) above. Why will the company produce more units than it sells in July and August, and fewer units than it sells in 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.

Tutor Answer

TeacherSethGreg
School: Rice University

Attached.

Production budget
June
Budgetted sales
Add: Desired ending inventory
Total needs
Less: Beginning inventory
Required production

July
August September October November
37,000 42,000
52,000
32,000
22,000
11,250 12,500 15,000
10,000
7,500
49,500 57,000
62,000
39,500
11,250 12,500
15,000
10,000
38,250 44,500
47,000 29,500

Direct material budget
June
Required production
H300 per Unit (CC)
Total H300 required (CC)

July
August Spetember October ...

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Anonymous
Outstanding Job!!!!

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