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 $2.20 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 Second Third 116,000 176,000 th Years First 86,000 Year 3 First 96,000 Budgeted production, in bottles Fourth 126,000 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 34,400 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. Mink Caress Direct Materials Budget - Year 2 Quarter First Second Third Fourth Year Units of raw materials needed per unit of finished goods Units of raw materials needed to meet production Total units of raw materials needed Units of raw materials to be purchased Unit cost of raw materials Cost of raw materials to purchased

Answer 1

Mink Caress Direct Materials Budget - Year 2
	Quarter
	First	Second	Third	Fourth	Year
Required production in units of finished goods	86000	116000	176000	126000	504000
Units of raw materials needed per unit of finished goods	2	2	2	2	2
Units of raw materials needed to meet production	172000	232000	352000	252000	1008000
Add desired units of ending raw materials inventory	46400	70400	50400	38400	38400
Total units of raw materials needed	218400	302400	402400	290400	1046400
Less units of beginning raw materials inventory	34400	46400	70400	50400	34400
Units of raw materials to be purchased	184000	256000	332000	240000	1012000
Unit cost of raw materials	2.20	2.20	2.20	2.20	2.20
Cost of raw materials to purchased	$404800	$563200	$730400	$528000	$2226400

Ending inventory = next quarter’s raw materials needed to meet production * 20%

Ending inventory fourth quarter = 96000*2*20% = 38400