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 company’s 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 20% of the next month’s sales. The finished goods inventory on June 30 is
budgeted to be 10,000 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 54,000 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.
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