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 $1.50 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 Budgeted production, i First 60,000 Second 90,000 Third Fourth 150.000 100.000 First 70,000 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 oll at the end of a quarter must be equal to 20% of the following quarter's production needs. Some 36,000 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 Mink Caress Direct Materials Budget - Year 2 Quarter First Second Third F ourth Year Units of raw materials needed per unit of finished goods Units of raw materials needed to meet production Total units of raw materials needed Units of raw materials to be purchased Unit cost of raw materials Cost of raw materials to purchased

Answer 1

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Direct Material Budget Mink Caress Direct Material Budget - Year-2 Quarter Third First Second Fourth Particulars Units of Raw material needed per unit of fininshed goods Unit of raw material needed to meet production Year-3, QTR-1 3 180000 (60000*3) 180000 3 270000 (90000*3) 270000 450000 (150000*3) 450000 3 300000 (100000*3) 300000 210000 (70000*3) 210000 Total Units of Raw material needed Units of raw material to be purchased 198000 306000 420000 282000 168000 [(180000-20%)+(20%*270000) [(270000-20%)+(20%*450000][(450000-20%)+(20%*300000)][(300000-20%)+(20%*210000)] [(210000-20%)] $ 1.50 $ 1.50 $ 1.50 $ 1.50 $ 1.50 $ 2,97,000.00 $ 4,59,000.00 $ 6,30,000.00 $ 4,23,000.00 $ 2,52,000.00 Unit cost of raw material Cost of raw material to purchased