Reference no: EM132831073

Problem - Daisy Products Limited of Shenzhen, China, manufactures and distributes toys throughout Southeast Asia.

Three cubic centimetres (cc) of solvent Q80 are required to manufacture each unit of Fineclay, 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 Fineclay 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 4,050 units of Fineclay plus 20% of the next month's sales. The finished goods inventory on June 30 is budgeted to be 13,500 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 72,900 cc of solvent Q80.

c. The company maintains no work-in-process inventories.

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

	Budgeted Sales in Units
July	47,250
August	54,000
September	67,500
October	40,500
November	27,000
December	13,500

Required -

1. Prepare a production budget for Fineclay for the months of July to October.

2. Prepare a budget showing the quantity of solvent Q80 to be purchased for July, August, and September, and for the quarter in total.