Pearl Products Limited of Shenzhen

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 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: a. The finished goods inventory on hand at the end of each month must equal 3,000 units of Supermix plus 25% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 19,250 units. b. The raw materials inventory on hand at the end of each month must equal one-half of the following month’s production needs for raw materials. The raw materials inventory on June 30 is budgeted to be 99,375 cc of solvent H300. c. 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 65,000 August 70,000 September 80,000 October 60,000 November 50,000 December 40,000 Required: 1. Prepare a production budget for Supermix for the months July, August, September, and October. 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. GPrepare a production budget for Supermix for the months July, August, September, and October. Pearl Products Limited Production Budget July Budgeted unit sales Add: Desired units of ending finished goods inventory Total needs August September October 65,000 70,000 80,000 20,500 23,000 18,000 85,500 93,000 Less: Units of beginning finished goods inventory 98,000 19,250 20,500 Required production in units 23,000 66,250 72,500 75,000 arrison 16e Rechecks 2017-05-18 rev: 03_06_2018_QC_CS-120799 Pearl Products Limited Direct Materials Budget July Required production in units of finished goods Units of raw materials needed per unit of finished goods 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 66,250 August 72,500 3 cc 1. 75,000 3 cc 3 198,750 217,500 225,000 108,750 112,500 86,250 307,500 330,000 311,250 99,375 108,750 112,500 221,250 198,750 208,125 Garrison 16e Rechecks 2017-05-18, 2018-09-26 Garrison_16e_Rechecks_2019_10_14 Explanation September 60,000 15,500 75,500 18,000 57,500 Desired units of ending finished goods inventory in October month: October: 3,000 units + (50,000 units × 25%) = 15,500 units. 3. Desired units of ending raw materials inventory in September month: 57,500 units (October production) × 3 cc per unit = 172,500 cc. 172,500 cc × 1/2 = 86,250 cc. As shown in part (1), production is greatest in September; however, as shown in the raw material purchases budget, purchases of materials are greatest a month earlier—in August. The reason for the large purchases of materials in August is that the materials must be on hand to support the heavy production scheduled for September. Schedules of Expected Cash Collections and Disbursements; Income Statement; Balance Sheet [LO8-2, LO8-4, LO8-9, LO8-10] Beech Corporation Balance Sheet June 30 Assets Cash $ 84,000 Accounts receivable 144,000 Inventory Plant and equipment, net of depreciation Total assets 63,750 223,000 $514,750 Liabilities and Stockholders’ Equity Accounts payable $ 84,000 Common stock 349,000 Retained earnings 81,750 Total liabilities and stockholders’ equity$514,750 Prepare a schedule of expected cash collections for July, August, and September. Schedule of Expected Cash Collections Month July August September Quarter From accounts receivable $144,000 $144,000 From July sales 119,000 221,000 340,000 From August sales 126,000 234,000 360,000 From September sales 122,500 122,500 Total cash collections $263,000 $347,000 $356,500 $966,500 Prepare a merchandise purchases budget for July, August, and September. Also compute total merchandise purchases for the quarter ended September 30. Merchandise Purchases Budget July August September Quarter Budgeted cost of goods sold $255,000 $270,000 $262,500 $787,500 Add: Desired ending merchandise 67,500 65,625 69,375 69,375 inventory Total needs 322,500 335,625 331,875 856,875 Less: Beginning merchandise inventory 63,750 67,500 65,625 63,750 Required purchases $258,750 $268,125 $266,250 $793,125 Prepare a schedule of expected cash disbursements for merchandise purchases for July, August, and September. Schedule of Cash Disbursements for Purchases From accounts payable From July purchases From August purchases From September July $84,000 103,500 August September Quarter $84,000 155,250 258,750 107,250 160,875 268,125 106,500 106,500 purchases Total cash disbursements $187,500 $262,500 $267,375 $717,375 Prepare an income statement that computes net operating income for the quarter ended September 30. Beech Corporation Income Statement For the Quarter Ended September 30 Sales $1,050,000 Cost of goods sold 787,500 Gross margin 262,500 Selling and administrative 132,000 expenses Net operating income 130,500 Prepare a balance sheet as of September 30. Beech Corporation Balance Sheet September 30 Assets Cash Accounts receivable Inventory Plant and equipment, net Total assets Liabilities and Stockholders' Equity Accounts payable Common stock Retained earnings Total liabilities and stockholders' equity Explanation $219,125 227,500 69,375 205,000 $721,000 $159,750 349,000 212,250 $721,000 Exercise 8-14 Sales and Production Budgets [LO8-2, LO8-3] The marketing department of Jessi Corporation has submitted the following sales forecast for the upcoming fiscal year (all sales are on account): Budgeted unit sales 1st Quarter2nd Quarter3rd Quarter4th Quarter 11,300 12,300 14,300 13,300 The selling price of the company’s product is $12 per unit. Management expects to collect 75% of sales in the quarter in which the sales are made, 20% in the following quarter, and 5% of sales are expected to be uncollectible. The beginning balance of accounts receivable, all of which is expected to be collected in the first quarter, is $70,800. The company expects to start the first quarter with 1,695 units in finished goods inventory. Management desires an ending finished goods inventory in each quarter equal to 15% of the next quarter’s budgeted sales. The desired ending finished goods inventory for the fourth quarter is 1,895 units. Required: 1. Calculate the estimated sales for each quarter of the fiscal year and for the year as a whole. 2. Calculate the expected cash collections for each quarter of the fiscal year and for the year as a whole. 3. Calculate the required production in units of finished goods for each quarter of the fiscal year and for the year as a whole.