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FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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
Transcribed Image Text:Textbook Exercise 8-10-Production and Direct Materials Budgets
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:
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.
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 54,000 cc of solvent H300.
The company maintains no work in process inventories.
A monthly sales budget for Supermix for the third and fourth quarters of the year follows.
b.
C.
July
August
September
October
November
December
quired:
1. Prepare a production budget for Supermix for the months July, August, September, and October.
July
Budgeted
in Units
Add: Desired units of
Finished Goods
Inventory
= TOTAL UNITS NEEDED
Less: Units of
Finished Goods Inventory
Budgeted Unit
Sales
35,000
40,000
50,000
30,000
20,000
10,000
Required
in Units, i.e., Production Budget
August
September
October
ers
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?
Expert Solution
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