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 $1.60 per gram. Budgeted production of Mink Caress is given below by quarters for Year 2 and for the first quarter of Year 3: First 76,000 Year 2 Second Third Fourth 106,000 166,000 116,000 Year 3 First 86,000 Budgeted production, in bottles 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 30,400 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. (Round "Unit cost of raw materials" answers to 2 decimal places.)

Answer 1

Ans.	MINK   CARESS
	Direct Materials Budget - Year 2
		Quarter
		First	Second	Third	Fourth	Total
	Required production in units of finished goods	76,000	106,000	166,000	116,000	464,000
	(X) Units of raw materials need per unit of finished goods	2	2	2	2	2
	Units of raw materials needed to meet production production	152000	212000	332000	232000	928000
	Add: Desired units of ending raw materials inventory	42400	66400	46400	34400	189600
	Total units of raw materials needed	194400	278400	378400	266400	1117600
	Less: Units of beginning raw materials inventory	-30400	-42400	-66400	-46400	-185600
	Units of raw materials to be purchased	164000	236000	312000	220000	932000
	(X) Unit cost of raw materials	$1.60	$1.60	$1.60	$1.60	$1.60
	Cost of raw materials to purchase	$262,400	$377,600	$499,200	$352,000	$1,491,200
	*Ending inventory for current quarter = Materials requirements of next quarter * 20%
	*Beginning inventory for Current quarter = Ending inventory of previous quarter
	*Besides unit cost of raw materials, all other amounts are correct.