Question

Exercise 8-3 (Algo) Direct Materials Budget [LO8-4]

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 $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:

	Year 2					Year 3
	First	Second	Third	Fourth		First
Budgeted production, in bottles	84,000	114,000	174,000	124,000		94,000

The inventory of musk oil at the end of a quarter must be equal to 20% of the following quarter’s production needs. Some 33,600 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

Mink Caress
Direct Materials Budget
	Quarter
	First	Second	Third	Forth	Year
Required Production in Units of Finished Goods	84000	114000	174000	124000	496000
Units of Raw material needed per Unit of Fished Goods	2	2	2	2	2
Units of Raw material needed to meet Production	168000	228000	348000	248000	992000
Desired Ending Inventory of Raw Material	45600	69600	49600	37600	37600
Total Units of Raw material Needed	213600	297600	397600	285600	1029600
Beginning Inventory of Raw Material Available	33600	45600	69600	49600	33600
Units of Raw material to be Purchased	180000	252000	328000	236000	996000
Unit cost of Raw Material	$                   2.10	$                     2.10	$                      2.10	$                   2.10	$                   2.10
Cost of Raw Material to be Purchased	$ 378,000	$ 529,200	$ 688,800	$ 495,600	$ 2,091,600