Question

Two grams of musk oil are required for each bottle of Mink Caress, a very popular perfume made by a small company in western Siberia. The cost of the musk oil is $1.50 per gram. Budgeted production of Mink Caress is given below by quarters for Year 2 and for the first quarter of Year 3:

	Year 2					Year 3
	First	Second	Third	Fourth		First
Budgeted production, in bottles	74,000	104,000	164,000	114,000		84,000

Musk oil has become so popular as a perfume ingredient that it has become necessary to carry large inventories as a precaution against stock-outs. For this reason, the inventory of musk oil at the end of a quarter must be equal to 20% of the following quarter’s production needs. Some 29,600 grams of musk oil will be on hand to start the first quarter of Year 2.

Required:

Prepare a direct materials budget for musk oil, by quarter and in total, for Year 2.

Answer 1

Answer-

Mink Cares
Direct Material Purchase Budget- Year 2
	Quarter
Particulars	First	Second	Third	Fourth	Year
Production units (a)	74000	104000	164000	114000	456000
Grams required each unit of raw material (b)	2 grams	2 grams	2 grams	2 grams	2 grams
Total grams required (c=a*b	148000	208000	328000	228000	912000
Add:- Closing Inventory 20% of next month production units	208000 grams*20%=41600 grams	328000 grams*20%=65600 grams	228000 grams*20%=45600 grams	168000 grams*20%=33600 grams	186400
Less:- Opening Inventory	29600 grams	41600 grams	65600 grams	45600 grams	182400
Direct material purchase (in grams) (a)	160000	232000	308000	216000	916000
Material cost per grams (b)	$1.50	$1.50	$1.50	$1.50	$1.50
Direct Material cost (c=a*b)	240000	348000	462000	324000	1374000