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 $1.90 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 82,000 112,000 172,000 122,000 92,000 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 32,800 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. (Round "Unit cost of raw materials" answers to 2 decimal places.)

Answer 1

Direct material budget

	first	Second	Third	Fourth	Year
Production Units	82000	112000	172000	122000	488000
Direct material per unit	2	2	2	2	2
Direct material needed for production	164000	224000	344000	244000	976000
Add: Desired ending inventory	44800	68800	48800	36800	36800
Total	208800	292800	392800	280800	1012800
Less: Beginning inventory	-32800	-44800	-68800	-48800	-32800
Direct material purchase	176000	248000	324000	232000	980000
Cost per grams	1.9	1.9	1.9	1.9	1.9
Direct material purchase cost	334400	471200	615600	440800	1862000