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.)

Answer 1

Direct material budget-Year 2

	First	Second	Third	fourth	Year
Required production in units of finished goods	78000	108000	168000	118000	472000
Units of raw materials needed 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 ending inventory	43200	67200	47200	35200	35200
Total units of raw materials needed	199200	283200	383200	271200	979200
Less: Beginning inventory	-31200	-43200	-67200	-47200	-31200
Units of raw materials to be purchased	168000	240000	316000	224000	948000
Unit cost of raw materials	1.7	1.7	1.7	1.7	1.7
Cost of raw materials to purchased	285600	408000	537200	380800	1611600