Question

Exercise 8-3 Direct Materials Budget [LO8-4] 16.66 points 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 $1.80 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 Second Third 124,000 184,000 First 94,000 eBook Year 3 First 104,000 Budgeted production, in bottles Fourth 134,000 Hint 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 75,200 grams of musk oil will be on hand to start the first quarter of Year 2. Print Required: Prepare a direct materials budget for musk oil, by kuarter and in total, for Year 2. References 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	94000	124000	184000	134000	536000
Units of Raw material needed per Unit of Fished Goods	4	4	4	4	4
Units of Raw material needed to meet Production	376000	496000	736000	536000	2144000
Desired Ending Inventory of Raw Material	99200	147200	107200	83200	83200
Total Units of Raw material Needed	475200	643200	843200	619200	2227200
Beginning Inventory of Raw Material Available	75200	99200	147200	107200	75200
Units of Raw material to be Purchased	400000	544000	696000	512000	2152000
Unit cost of Raw Material	$                   1.80	$                     1.80	$                      1.80	$                   1.80	$                   1.80
Cost of Raw Material to be Purchased	$ 720,000	$ 979,200	$ 1,252,800	$ 921,600	$ 3,873,600

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Desired Closing Inventory for Forth Quarter is calculated by taking Raw material needs of first quarter of year 3. 20% of Raw material needed for production is closing stock of forth quarter.Calculated as below.

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Required Production in Units of Finished Goods (Quarter 1 Year 3)	104000
Units of Raw material needed per Unit of Fished Goods (Quarter 1 Year 3)	4
Units of Raw material needed to meet Production (Quarter 1 Year 3)	416000
Ending Raw material for forth quarter (416000*20%)	83200