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 ...view middle of the document...
During July and August the company is building inventories in anticipation of peak sales in September. Therefore, production exceeds sales during these months. In September and October inventories are being reduced in anticipation of a decrease in sales during the last months of the year. Therefore, production is less than sales during these months to cut back on inventory levels.
3. Direct materials budget:
| |July |August |September |Third |
| | | | |Quarter |
|Required production (units) |36,000 |42,000 |46,000 |124,000 |
|Material H300 needed per unit | × 3 cc | × 3 cc | × 3 cc | × 3 cc |
|Production needs (cc) |108,000 ...