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.

Budgeted production in bottles

First	second	third	fourth	first (year 3)
60,000	90,000	150,000	100,000	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 all stock-outs. For this reason the inventory of musk oil at the end of the 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.

	first	second	third	fourth	year
required production in units of finished goods	60,000	90,000	150,000	100,000	400,000
units of raw materials needed per unit of finished goods	3	3	3	3	3
units of raw materials needed to meet production	180,000	270,000	450,000	300,000	1,200,000
add: Desired units of ending raw materials inventory	54,000	90,000	60,00	42,000	42,000
total units of raw material needed	234,000	360,00
Less: units of beginning raw materials inventory
units of raw materials to be purchased
unit cost of raw materials
cost of raw materials to be purchased

Answer 1

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