Question

Four 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:

	Year 2					Year 3
	First	Second	Third	Fourth		First
Budgeted production, in bottles	88,000	118,000	178,000	128,000		98,000

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 70,400 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

Direct materials budget for musk oil, by quarter and in total, for Year 2.
Particulars	Year 2
First	Second	Third	fourth
Production (in units)	88000	118000	178000	128000
Add closing stock	23600	35600	25600	19600
Less opening stock	70400	23600	35600	25600
Purchase (In units)	41200	130000	168000	122000
Direct material budget
Particulars	First	Second	Third	fourth	Total
Purchase quantity in units	41200	130000	168000	122000	461200
Cost per gram	1.5	1.5	1.5	1.5	1.5
Total	61800	195000	252000	183000	691800