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 $1.80 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	66,000	96,000	156,000	106,000		76,000

    

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 39,600 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. (Round "Unit cost of raw materials" answers to 2 decimal places.)

Answer 1

	First	Second	Third	Fourth	Year
Production required of finished goods in units (1)	66,000	96,000	156,000	106,000	424,000
Units of raw materals needed per unit of finished goods (2)	3	3	3	3	3
Units of raw materials needed to meet production 3 (1 * 2)	198,000	288,000	468,000	318,000	1,272,000
Add: desired units of ending raw materials inventory (4)	57,600	93,600	63,600	45,600	45,600
Total units of raw materials needed 5 (3 + 4)	255,600	381,600	531,600	363,600	1,317,600
Less: Units of beginning raw materials inventory(6)	39,600	57,600	93,600	63,600	39,600
Units of raw materials to be purchased 7 (5 - 6)	216,000	324,000	438,000	300,000	1,278,000

Unit cost of raw materials (8)	1.80	1.80	1.80	1.80	1.80
Cost of raw materials to be purchased (7 * 8)	388,800	583,200	788,400	540,000	2,300,400

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