Pearl Products Limited of Shenzhen, China, manufactures and distributes toys throughout Southeast Asia. Three cubic centimeters (cc) of solvent H300 are required to manufacture each unit of Supermix, one of the companys 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:

1. The finished goods inventory on hand at the end of each month must equal 4,000 units of Supermix plus 25% of the next months sales. The finished goods inventory on June 30 is budgeted to be 15,250 units.

2. The raw materials inventory on hand at the end of each month must equal one-half of the following months production needs for raw materials. The raw materials inventory on June 30 is budgeted to be 69,375 cc of solvent H300.

3. The company maintains no work in process inventories.

A monthly sales budget for Supermix for the third and fourth quarters of the year follows.

	Budgeted Unit Sales
July	45,000
August	50,000
September	60,000
October	40,000
November	30,000
December	20,000

Required:

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

Pearl Products Limited
Production Budget
	July	August	September	October
Budgeted unit sales
Add: Desired units of ending finished goods inventory
Total needs
Less: Units of beginning finished goods inventory
Required production in units

2.

Prepare a direct materials budget showing the quantity of solvent H300 to be purchased for July, August, and September, and for the quarter in total.

Pearl Products Limited
Direct Materials Budget
	July		August		September		Third Quarter
Units of raw materials needed per unit of finished goods		cc		cc		cc		cc
Units of raw materials needed to meet production
Add: Desired units of ending raw materials inventory
Total units of raw materials needed
Less: Units of beginning raw materials inventory
Units of raw materials to be purchased