Question

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 $2.20 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 130,000 190,000 First 100,000 Budgeted production, in bottles Year 3 First 110,000 Fourth 140,000 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 80,000 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

Answer 1

Answer-

Mink Caress
Direct Material Purchase Budget- Year 2
		Quarter
Particulars	First	Second	Third	Fourth	Year
Production units	100000	130000	190000	140000	560000
Grams required each unit of raw material	4 grams	4 grams	4 grams	4 grams
Total grams required	100000 units*4 grams=400000 grams	130000 units*4 grams=520000 grams	190000 units*4 grams=760000 grams	140000 units*4 grams=560000 grams	2240000
Add:- Closing Inventory 20% of next month production units	520000 grams*20%=104000 grams	760000 grams*20%=152000 grams	560000 grams*20%=112000 grams	440000 grams*20%=88000 grams	456000
Less:- Opening Inventory	80000 grams	104000 grams	152000 grams	112000 grams	448000
Direct material purchase (in grams) (a)	424000	568000	720000	536000	2248000
Material cost per grams (b)	$2.20	$2.20	$2.20	$2.20
Direct Material cost (c=a*b)	932800	1249600	1584000	1179200	4945600