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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 3,000 units of Supermix plus 20% of the next month's sales. The finished goods inventory on June 30 is budgeted to be 10,000 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 54,000 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 August September October November December 35,000 40,000 50,000 30,000 20,000 10,000 Chapter 8 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.

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 3,000 units of Supermix plus 20% of the next month's sales. The finished goods inventory on June 30 is budgeted to be 10,000 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 54,000 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 August September October November December 35,000 40,000 50,000 30,000 20,000 10,000 Chapter 8 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.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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 3,000 units of Supermix plus 20% of the next month's sales. The finished goods inventory on June 30 is budgeted to be 10,000 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 54,000 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 August September 35,000 40,000 50,000 30,000 20,000 October November December 10,000 Chapter 8 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.
Transcribed Image Text: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 3,000 units of Supermix plus 20% of the next month's sales. The finished goods inventory on June 30 is budgeted to be 10,000 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 54,000 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 August September 35,000 40,000 50,000 30,000 20,000 October November December 10,000 Chapter 8 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.
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