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					Year 3
	First	Second	Third	Fourth		First
Budgeted production, in bottles	60,000	90,000	150,000	100,000		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 oil 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. (Round "Unit cost of raw materials" answers to 2 decimal places.)

Units of raw materials needed pr unit of finished goods:

Units of raw materials needed to meet production:

Total units of raw material needed:

Units of raw materials to be purchased

Unit cost of raw materials:

Cost of raw matierals to be purchased:

Answer 1

Mink Caress
Direct materials budget - Year 2
	Quarter
	first	second	third	fourth	Year
Budgeted production, in bottles	60000	90000	150000	100000	400000
(*)Units of raw materials needed per unit of finished goods	3	3	3	3	3
Units of raw materials needed to meet production	180000	270000	450000	300000	1200000
(+) Desired ending inventory of raw materials (20% of following quarter's production needs)	54000	90000	60000	42000	42000
Total units of raw materials needed	234000	360000	510000	342000	1242000
(-) Beginning inventory of raw materials	36000	54000	90000	60000	36000
Units of raw materials to be purchased	198000	306000	420000	282000	1206000
(*) Unit cost of raw materials	1.50	1.50	1.50	1.50	1.50
Cost of raw materials to be purchased	297000	459000	630000	423000	1809000

Note : 1)Ending inventory for 4th quarter will be 20% of the production needs of the first quarter of year 3
Production needs of the first quarter of year 3 = 70000 * 3	210000
Ending inventory of 4th quarter = 20% * 210000	42000