Question

Three 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 Budgeted production, i First 60,000 Second 90,000 Third Fourth 150.000 100.000 First 70,000 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 oll at the end of a quarter must be equal to 20% of the following quarter's production needs. Some 36,000 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 F ourth 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

Correct Answer:

Mink Caress
Direct Materials Budget-Year 2
	Quarter
	First	Second	Third	Forth	Year
Required Production in Units of Finished Goods	60000	90000	150000	100000	400000
Units of Raw material needed per Unit of Fished Goods	3	3	3	3	3
Units of Raw material needed to meet Production	180000	270000	450000	300000	1200000
Desired Closing Inventory of Raw Material	54000	90000	60000	42000	42000
Total Units of Raw material Needed	234000	360000	510000	342000	1242000
Opening Stock of Raw Material Available	36000	54000	90000	60000	36000
Units of Raw material to be Purchased	198000	306000	420000	282000	1206000
Unit cost of Raw Material	$               1.50	$               1.50	$               1.50	$                   1.50	$                   1.50
Cost of Raw Material to be Purchased	$ 297,000.00	$ 459,000.00	$ 630,000.00	$      423,000.00	$ 1,809,000.00

Working:

Desired Closing Inventory for Fourth Quarter is calculated by taking Raw material needs of first quarter of year 3. 20% of Raw material needed for production is closing stock of fourth quarter.

Calculated as below.

Required Production in Units of Finished Goods (Quarter 1 Year 3)	70000
Units of Raw material needed per Unit of Fished Goods (Quarter 1 Year 3)	3
Units of Raw material needed to meet Production (Quarter 1 Year 3)	210000
Closing Raw material for forth quarter (210000*20%)	42000

End of answer.

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