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 for the first quarter of Year 3: 2 Year 2 Year 3 First First 98,000 128,000 188,000 138,000 Second Third Fourth Budgeted production, in bottles 108,000 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 First Second Third Fourth 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

Answer

	Quarter				Year
	First	Second	Third	Fourth
Required Production in units of finished goods	98,000	128,000	188,000	138,000	552,000
Units of raw material needed per unit of finished goods	4	4	4	4	4
Units of raw material needed to meet production	392,000	512,000	752,000	552,000	2,208,000
Add: Desired units of ending raw material inventory	102,400	150,400	110,400	86,400	86,400
Total units of raw material needed	494,400	662,400	862,400	638,400	2,294,400
Less: Units of neginning raw material inventory	78,400	102,400	150,400	110,400	78,400
Units of raw material to be purchased	416,000	560,000	712,000	528,000	2,216,000
Unit cost of raw materials	$2.10	$2.10	$2.10	$2.10	$2.10
Cost of raw materials to be purchased	$873,600	$1,176,000	$1,495,200	$1,108,800	$4,653,600