PROBLEM 9-15 Production and Direct Materials Budgets [LO3, LO4] 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 Chapter 9 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 cach 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 35,000 40,000 50,000 30,000 July August. September October. November December 20,000 10,000
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
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