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 $2.10 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 100,000 160,000 First 70,000 Budgeted production, in bottles Year 3 First 80,000 Fourth 110,000 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 42,000 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.) Mink Caress Direct Materials Budget - Year 2 Quarter First Second Required production in units of finished goods Units of raw materials needed per unit of finished goods Units of raw materials needed to meet production Third Fourth Year Total units of raw materials needed 0 Units of raw materials to be purchased Unit cost of raw materials Cost of raw materials to be purchased

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Answer 1

Solution

Mink Caress
Direct Materials Budget
	Quarter
	First	Second	Third	Forth	Year
Required Production in Units of Finished Goods	70000	100000	160000	110000	440000
Units of Raw material needed per Unit of Fished Goods	3	3	3	3	3
Units of Raw material needed to meet Production	210000	300000	480000	330000	1320000
Desired Ending Inventory of Raw Material	60000*	96000	66000	48000**	48000
Total Units of Raw material Needed	270000	396000	546000	378000	1368000
Beginning Inventory of Raw Material Available	42000	60000	96000	66000	42000
Units of Raw material to be Purchased	228000	336000	450000	312000	1326000
Unit cost of Raw Material	$                   2.10	$                     2.10	$                      2.10	$                   2.10	$                   2.10
Cost of Raw Material to be Purchased	$ 478,800	$ 705,600	$ 945,000	$ 655,200	$ 2,784,600

*300000 x 20%

** Desired ending inventory of quarter 4 = (80000 x 3) x 20%

Detailed soution

Mink Caress
Direct Materials Budget
	Quarter
	First	Second	Third	Forth	Year
Required Production in Units of Finished Goods	70000	100000	160000	110000	440000
Multiplied by :: Units of Raw material needed per Unit of Fished Goods	3	3	3	3	3
Units of Raw material needed to meet Production	210000	300000	480000	330000	1320000
Add: Desired Ending Inventory of Raw Material	60000	96000	66000	48000	48000
Total Units of Raw material Needed	270000	396000	546000	378000	1368000
Less: Beginning Inventory of Raw Material Available	42000	60000	96000	66000	42000
Units of Raw material to be Purchased	228000	336000	450000	312000	1326000
Multiplied by :: Unit cost of Raw Material	$                   2.10	$                     2.10	$                      2.10	$                   2.10	$                   2.10
Cost of Raw Material to be Purchased	$ 478,800	$ 705,600	$ 945,000	$ 655,200	$ 2,784,600