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 oll is $1.80 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 Pirst Second Third Fourth 80,000 110,000 170,000 120,000 Budgeted production, in bottles First 90,000 Musk oll 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 32,000 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. (Round "Unit cost of raw materials" answers to 2 decimal places.) 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

Answer 1

Preparation of Direct Material Budget for musk Oil, by quarter and in total for year 2

	Mink Caress
		First	Second	Third	Fourth	year
	Production requirement (Units)	80000	110000	170000	120000	480000
a	Raw material required for production @ 2gms per unit	160000	220000	340000	240000	960000
b	add: Desired closing inventory (0.20 X next quarter production needs)	44000	68000	48000	18000	18000
c	Total Requirements (a+b)	204000	288000	388000	258000	978000
d	less: Opening Inventory	32000	44000	68000	48000	32000
e	Purchase requirement (c-d)	172000	244000	320000	210000	946000
	Unit Cost of raw material	1.8	1.8	1.8	1.8	1.8
	Cost of raw material to purchased	309600	439200	576000	378000	1702800

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