Gelco, Inc. manufactures and distributes gel pens. Each pen requires 2 ounces of liquid gel (LG 500) to manufacture each unit pen. The gel pens are a popular school supply and as a result, the third quarter is the quarter in which peak sales occur. As the production manager at Gelco, you are responsible for planning raw materials needs for the company. With the winter production and sales coming to a close, it is time to begin planning for third quarter production needs. You have been using the following inventory requirements to assist you in planning and controlling inventory needs:

a. The finished goods inventory on hand at the end of each month must be equal to 4,000 pens plus 25% of the next month's sales. The finished goods inventory on June 30 is budgeted to be 14,000 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 50,000 ounces of liquid gel (LG500).

c. The company maintains no work in process inventories. A sales budget for pens for the last six months of the year follows. Budgeted Sales in Units July 40,000 August 45,000 September 50,000 October 35,000 November 25,000 December 10,000

A sales budget for pens for the last six months of the year follows.

Budgeted Sales in Units July 40,000 August 45,000 September 50,000 October 35,000 November 25,000 December 10,000

Required:

1. Prepare a production budget for the pens for the months July, August, and September, and for the quarter.

2. Prepare a direct materials budget showing the quantity of liquid gel (LG 500) to be purchased for July, August, and September, and for the quarter in total.