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 $1.70 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					Year 3
	First	Second	Third	Fourth		First
Budgeted production, in bottles	64,000	94,000	154,000	104,000		74,000

The inventory of musk oil at the end of a quarter must be equal to 20% of the following quarter’s production needs. Some 38,400 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.

Answer 1

Solution:

Direct Material Budget
For the Quarter Ended and Year Ended
	Quarter				Year
	1	2	3	4
Direct material Needed for Production	192000	282000	462000	312000
Add: Desired Ending Direct Material	56400	92400	62400	14800
Total Required Units	248400	374400	524400	326800
Less: Beginning Direct Material	38400	56400	92400	62400
Direct Material Purchases[a]	210000	318000	432000	264400	1224400
Cost per Kilogram [b]	$              1.70	$          1.70	$            1.70	$             1.70	$             1.70
Cost of direct material purchases[a*b]	$       357,000	$   540,600	$     734,400	$      449,480	$   2,081,480