Question 13 (8 points)

Panarama Ltd. manufactures and distributes a number of products to retailers. One of these products, Product "X", requires 3 kilograms of direct material "A" in the manufacture of each unit. The company is now planning raw materials need for the third quarter July, August, September. Panarama sales of "X" occur in the third quarter of each year. To keep production and shipments moving smoothly, the company has the following inventory requirements:

1. The finished goods inventory on hand at the end of each month must be equal to 5,000 units plus 20% of the next month's sales. The finished goods inventory on June 30 is budgeted to be 17,000 units.
2. The direct materials inventory on hand at the end of each month must be equal to 30% of the direct material needs for the number of units scheduled to be in ending inventory (of finished goods) for that month.
3. The company maintains no work-in-process inventories.

A sales budget for the company for the last six months of the year follows:

July, 40,000 units; August, 51,000 units; September, 75,000 units; October, 35,000 units; November, 20,000 units.

Required:

1. Prepare a production budget for the company for the month of August only.

1. Prepare a direct materials budget for August only.