Question

Four 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 First Second Third 96.000 126,000 116,000 Budgeted production, in bottles Fourth 136,000 105,000 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 muskoll at the end of a quarter must be equal to 20% of the following quarter's production needs. Some 76,800 grams of musk oil will be on hand to start the first quarter of Year 2 for Required Prepare a direct materials budget for musk all, 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 F ourth Y ear Units of raw materiais e ed to meet production Total units of raw materials needed Units of raw materials to be purchased Unit cost of raw materials Cost of materials to purchased < Prex 3 of 6 !! Next > MacBook Pro

Answer 1

Mink Caress
Direct Materials Budget - Year 2
	Quarter
	First	Second	Third	Fourth	Year
Required production in units of finished goods                              (a)	96,000	126,000	186,000	136,000	544,000
Units of raw materials needed per unit of finished goods               (b)	4	4	4	4	4
Units of raw materials needed to meet production                          (a x b)	384,000	504,000	744,000	544,000	2,176,000
Add: Desired units of ending raw materials inventory                   [Refer working note]	100,800	148,800	108,800	84,800	443,200
Total units of raw materials needed	484,800	652,800	852,800	628,800	2,619,200
Less: Units of beginning raw materials inventory	76,800	100,800	148,800	108,800	435,200
Units of raw materials to be purchased                                          (c)	408,000	552,000	704,000	520,000	2,184,000
Unit cost of raw materials                                                             (d)	$1.90	$1.90	$1.90	$1.90	$1.90
Cost of raw materials to be purchased                                       (c x d)	$775,200	$1,048,800	$1,337,600	$988,000	$4,149,600

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Working note - Computation of ending raw material inventory for each quarter
	Year 2				Year 3
	First	Second	Third	Fourth	First
Required production in units of finished goods                              (a)	96,000	126,000	186,000	136,000	106,000
Units of raw materials needed per unit of finished goods               (b)	4	4	4	4	4
Production needs                                                                            (a x b)	384,000	504,000	744,000	544,000	424,000
Desired units of ending raw materials inventory = 20% of the following quarter's production needs
For first quarter = Second quarter's production needs x 20% = 504,000 x 20%	100,800
For second quarter = Third quarter's production needs x 20% = 744,000 x 20%		148,800
For third quarter = Fourth quarter's production needs x 20% = 544,000 x 20%			108,800
For fourth quarter = Year 3's first quarter's production needs x 20% = 424,000 x 20%				84,800