Question

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 $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	80,000	110,000	170,000	120,000		90,000

    

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 32,000 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.) What is the desired units of ending raw materials inventory for each quarter?

Answer 1

Direct Material Budget
For Year 2
	Year 2
	First	Second	Third	Fourth	Total
Units of Mink Caress to be produced	80,000	110,000	170,000	120,000	480,000
Musk oil material requirement per units (in gm)	2	2	2	2	2
Material needed for production (in gm)	160,000	220,000	340,000	240,000	960,000
Add: Ending material inventory	44,000	68,000	48,000	36,000	36,000
Total material requirement	204,000	288,000	388,000	276,000	996,000
Less: Beginning material inventory	32,000	44,000	68,000	48,000	32,000
Materials to be purchased (in gm)	172,000	244,000	320,000	228,000	964,000
Cost of material per gm	$                     1.80	$              1.80	$            1.80	$            1.80	$                   1.80
Total Budgeted direct materials cost	$              309,600	$       439,200	$    576,000	$     410,400	$        1,735,200