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 2,000 units of Supermix plus 25% of the next months sales. The finished goods inventory on June 30 is budgeted to be 17,250 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 80,000 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

61,000

August

66,000

September

76,000

October

56,000

November

46,000

December

36,000

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	61,000	66,000	76,000	56,000
	Add desired units of ending finished goods inventory	18,500	21,000	16,000	15,520
	Total needs	79,500	87,000	92,000	71,250
	Less units of beginning finished goods inventory	17,250	18,500	21,000	16,000
	Required production in units	62,250	68,500	71,000	55,250

3.	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 Material Budget

	July	August	September		Third Quarter
Required production in units of finished goods	62,250	68,500	71,000		201,750
Units of raw materials needed per unit of finished goods	3 cc	3 cc	3 cc		3 cc
Units of raw materials needed to meet production	186,750	205,500	213,000		605,250
Add desired units of ending raw materials inventory	102,750	106,500	102,750		102,750
Total units of raw materials needed	289,500	312,000	315,750		708,000
Less units of beginning raw materials inventory	80,000	102,750	106,500		80,000
Units of raw materials to be purchased	209,500	209,250	209,250		628,000