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 $1.70 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 108,000 168,000 First 78,000 Budgeted production, in bottles Year 3 First 88,000 Fourth 118,000 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 31,200 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 Units of raw materials to be purchased Unit cost of raw materials Cost of raw materials to be purchased

Answer 1

Ans.	MINK   CARESS
	Direct Materials Budget - Year 2
		Quarter
		First	Second	Third	Fourth	Total
	Required production in units of finished goods	78,000	108,000	168,000	118,000	472,000
	(X) Units of raw materials need per unit of finished goods	2	2	2	2	2
	Units of raw materials needed to meet production	156000	216000	336000	236000	944000
	Add: Desired units of ending raw materials inventory	43200	67200	47200	35200	192800
	Total units of raw materials needed	199200	283200	383200	271200	1136800
	Less: Units of beginning raw materials inventory	-31200	-43200	-67200	-47200	-188800
	Units of raw materials to be purchased	168000	240000	316000	224000	948000
	(X) Unit cost of raw materials	$1.70	$1.70	$1.70	$1.70	$1.70
	Cost of raw materials to purchase	$285,600	$408,000	$537,200	$380,800	$1,611,600
	*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	216,000 * 20%	43200		1	(given)	31200
2	336,000 * 20%	67200		2	Ending inventory of Q1	43200
3	236,000 * 20%	47200		3	Ending inventory of Q2	67200
4	176,000 * 20%	35200		4	Ending inventory of Q3	47200
	*Calculations of Units of raw materials needed for the first quarter of Year 3:
	Required production in units of finished goods	88,000
	(X) Units of raw materials need per unit of finished goods	2
	Units of raw materials needed to meet production	176000