Exercise 7-10 Production and Direct Materials Budgets [LO7-3, LO7-4]

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 companys 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 25% of the next months sales. The finished goods inventory on June 30 is budgeted to be 16,250 units.
b.	The raw materials inventory on hand at the end of each month must be equal to one-half of the following months production needs for raw materials. The raw materials inventory on June 30 is budgeted to be 81,375 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	53,000
August	58,000
September	68,000
October	48,000
November	38,000
December	28,000

Required:
1.	Prepare a production budget for Supermix for the months July, August, September, and October.