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 $1.50 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 Second ThirdFourth 104,000 164,000 114,000 First 74,000 Year 3 First 84,000 Budgeted production, in bottles 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 29,600 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.

Answer 1

Ans.	MINK   CARESS
	Direct Materials Budget - Year 2
		Quarter
		First	Second	Third	Fourth	Total
	Required production in units of finished goods	74,000	104,000	164,000	114,000	456,000
	(X) Units of raw materials need per unit of finished goods	2	2	2	2	2
	Units of raw materials needed to meet production	148000	208000	328000	228000	912000
	Add: Desired units of ending raw materials inventory	41600	65600	45600	33600	186400
	Total units of raw materials needed	189600	273600	373600	261600	1098400
	Less: Units of beginning raw materials inventory	-29600	-41600	-65600	-45600	-182400
	Units of raw materials to be purchased	160000	232000	308000	216000	916000
	(X) Unit cost of raw materials	$1.50	$1.50	$1.50	$1.50	$1.50
	Cost of raw materials to purchase	$240,000	$348,000	$462,000	$324,000	$1,374,000
	*Ending inventory for current quarter = Raw materials needs units of next quarter * 20%
	*Beginning inventory for Current quarter = Ending inventory of previous quarter
	*Besides unit cost of raw materials, all other amounts are correct.
*Calculations for Ending inventory:					*Calculations for Beginning inventory:
Quarter				Quarter
1	208,000 * 20%	41600		1	(given)	29600
2	328,000 * 20%	65600		2	Ending inventory of Q1	41600
3	228,000 * 20%	45600		3	Ending inventory of Q2	65600
4	168,000 * 20%	33600		4	Ending inventory of Q3	45600
	*Calculations of production needs for the first quarter of Year 3:
	Required production in units of finished goods	84,000
	(X) Units of raw materials need per unit of finished goods	2
	Units of raw materials needed to meet production	168000