Franklin Products Limited manufactures and distributes a number of products to retailers. One of these products, SuperStick, requires four kilograms of material D236 in the manufacture of each unit. The company is now planning raw materials needs for the third quarter—July, August, and September. Peak sales of SuperStick occur in the third quarter of each year. To keep production and shipments 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 8,000 units plus 20% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 22,000 units.

b. The raw materials inventory on hand at the end of each month must be equal to 40% of the following month’s production needs for raw materials. The raw materials inventory on June 30 for material D236 is budgeted to be 129,000 kilograms.

c. The company maintains no work in process inventories. A sales budget for SuperStick for the last six months of the year follows:

Budgeted Sales in Units

July. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000

August. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,000

September. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,000

October. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,000

November. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000

December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000

Required:

1. Prepare a production budget for SuperStick for July, August, September, and October.

2. Examine the production budget that you prepared. 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 purchases budget showing the quantity of material D236 to be purchased for July, August, and September and for the quarter in total.