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 $1.60 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 106,000 166,000 First 76,000 Budgeted production, in bottles Year 3 First 86,000 Fourth 116,000 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 30,400 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

Solution

Mink Caress
Direct Materials Budget
	Quarter
	First	Second	Third	Forth	Year
Required Production in Units of Finished Goods	76000	106000	166000	116000	464000
Units of Raw material needed per Unit of Fished Goods	2	2	2	2	2
Units of Raw material needed to meet Production	152000	212000	332000	232000	928000
Desired Ending Inventory of Raw Material	42400	66400	46400	34400*	34400
Total Units of Raw material Needed	194400	278400	378400	266400	962400
Beginning Inventory of Raw Material Available	30400	42400	66400	46400	30400
Units of Raw material to be Purchased	164000	236000	312000	220000	932000
Unit cost of Raw Material	$                   1.60	$                     1.60	$                      1.60	$                   1.60	$                   1.60
Cost of Raw Material to be Purchased	$ 262,400	$ 377,600	$ 499,200	$ 352,000	$ 1,491,200

*(86000 x 2) x 20%