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 $2.10 per gram. Budgeted production of Mink Caress is given below by quarters for Year 2 and f the first quarter of Year 3: Year 2 Second Third 128,000 188,000 First 98,000 Budgeted production, in bottles Year 3 First 108,000 Fourth 138,000 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 78,400 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. Mink Caress Direct Materials Budget - Year 2 Quarter Third Fourth Year First 98,000 Second 128,000 188,000 138,000 552,000 4 4 4 4 552,000 2,208,000 392,000 102,400 512,000 150,400 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 Add: Desired units of ending raw materials inventory Total units of raw materials needed Less: Units of beginning raw materials inventory Units of raw materials to be purchased Unit cost of raw materials Cost of raw materials to purchased 752,000 110,400 862,400 494,400 662,400 $ 2.10 $ 2.10 $ 2.10 $ 2.10 $ 2.10

Answer 1

Ans. Required production in units of finished goods (X) Units of raw materials need per unit of finished goods Units of raw materials needed to meet production Add: Desired units of ending raw materials inventory Total units of raw materials needed Less: Units of beginning raw materials inventory Units of raw materials to be purchased (X) Unit cost of raw materials Cost of raw materials to purchase First 98,000 4 392000 102400 494400 -78400 416000 $2.10 $873,600 MINK CARESS Direct Materials Budget - Year 2 Quarter Second 128,000 4 512000 150400 662400 -102400 560000 $2.10 $1,176,000 Third 188,000 4 752000 110400 862400 -150400 712000 $2.10 $1,495,200 Fourth 138,000 4 552000 86400 638400 -110400 528000 $2.10 $1,108,800 Total 552,000 4 2208000 449600 2657600 -441600 2216000 $2.10 $4,653,600 *WORKING NOTES: *Calculations of Units of raw materials needed for the first quarter of Year 3: Required production in units of finished goods (X) Units of raw materials need per unit of finished goods Units of raw materials needed to meet production 108,000 4 432000 *Ending inventory for current quarter = Raw materials needs units of next quarter * 20% * Beginning inventory for Current quarter = Ending inventory of previous quarter *Calculations for Beginning inventory: *Calculations for Ending inventory: Quarter 1 2 512,000 20% 752,000 2096 552,000 20% 432,000 * 20% 102400 150400 110400 Quarter 1 2 3 4 (given) Ending inventory of Q1 Ending inventory of Q2 Ending inventory of Q3 78400 102400 150400 110400 3 4 86400

Ans. 1 Fourth quarter Required production in units Direct labor time per unit (hours) Total direct labor hours needed Direct labor cost per hour Total direct labor cost First quarter 9800 0.75 7350 $14 $102,900 Rordan Corporation Direct Labor Budget Second quarter 7500 0.75 5625 $14 $78,750 Third quarter 7900 0.75 5925 $14 $82,950 10200 0.75 7650 $14 $107,100 Total 35400 0.75 26550 $14 $371,700 *Total direct labor hours needed = Required production in units Direct labor time per unit (hours) Total direct labor cost = Total direct labor hours needed * Direct labor cost per hour Ans. 2 Third quarter Total direct labor hours needed Regular hours paid (a) Overtime hours paid (b) Wages for regular hours ($14* a) Overtime wages ($14*1.5*b) Total direct labor cost First quarter 7350 7000 350 $98,000 $7,350 $105,350 Rordan Corporation Direct Labor Budget Second quarter 5625 7000 0 $98,000 $0 $98,000 5925 7000 0 $98,000 $0 $98,000 Fourth quarter 7650 7000 650 $98,000 $13,650 $111,650 Total 26550 28000 1000 $392,000 $21,000 $413,000 *Overtime hours = If total direct labor hours needed are higher than the regular hours, then the difference is known as overtime hours. The overtime wages will be paid in first and fourth quarter. *Normal wages rate is $14, so this wages rate is used for regular hours. *Wages rate for overtime hours is 1.5 times of normal wages rate (1.5 * $14 = $21). *Total direct labor cost = Wages for regular hours + Overtime wages