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 $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	70,000	100,000	160,000	110,000		80,000

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 42,000 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. (Round "Unit cost of raw materials" answers to 2 decimal places.)

Answer 1

	First	Second	Third	Fourth	Year
Required production in units of finished goods	70000	100000	160000	110000	440000
Units of raw materials needed per unit of finished goods	3	3	3	3	3
Units of raw materials needed to meet production	210000	300000	480000	330000	1320000
Add desired units of ending raw materials inventory	60000	96000	66000	48000	48000
Total units of raw materials needed	270000	396000	546000	378000	1368000
Less units of beginning raw materials inventory	42000	60000	96000	66000	42000
Units of raw materials to be purchased.	228000	336000	450000	312000	1326000
Unit cost of raw materials	2.1	2.1	2.1	2.1	2.1
Cost of raw materials to purchased	478800	705600	945000	655200	2784600
Workings:
Desired units of ending raw materials inventory:
First = 300000*20%=60000
Second = 480000*20%=96000
Thrid = 330000*20%=66000
Fourth = 80000*3*20%=48000