Question

Four 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 First Second Third Fourth 88,000 118,000 178,000 128,000 Year 3 First 98,000 DOR Budgeted production, in bottles 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 70,400 grams of musk oil will be on hand to start the first quarter of Year 2 rences Required: Prepare a direct materials budget for musk oil, by quarter and in total, for Year 2

Answer 1

	First	Second	Third	Fourth	Year
Required production in units of finished goods	88000	118000	178000	128000	512000
Units of raw materials needed per unit of finished goods	4	4	4	4	4
Units of raw materials needed to meet production	352000	472000	712000	512000	2048000
Add desired units of ending raw materials inventory	94400	142400	102400	78400	78400
Total units of raw materials needed	446400	614400	814400	590400	2126400
Less units of beginning raw materials inventory	70400	94400	142400	102400	70400
Units of raw materials to be purchased.	376000	520000	672000	488000	2056000
Unit cost of raw materials	1.50	1.50	1.50	1.50	1.50
Cost of raw materials to purchased	564000	780000	1008000	732000	3084000