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 $1.70 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	64,000	94,000	154,000	104,000		74,000

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 38,400 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. (Round "Unit cost of raw materials" answers to 2 decimal places.)

	Mink Caress Direct Materials Budget - Year 2 Quarter First Second Third Fourth Year Units of raw materials needed per unit of finished goods Units of raw materials needed to meet production Total units of raw materials needed 0 0 0 0 Units of raw materials to be purchased 0 0 0 0 0 Unit cost of raw materials Cost of raw materials to purchased

Answer 1

Solution

Mink Caress
Direct Materials Budget
	Quarter
	First	Second	Third	Forth	Year
Required Production in Units of Finished Goods	64000	94000	154000	104000	416000
Units of Raw material needed per Unit of Fished Goods	3	3	3	3	3
Units of Raw material needed to meet Production	192000	282000	462000	312000	1248000
Desired Ending Inventory of Raw Material	56400	92400	62400	44400*	44400
Total Units of Raw material Needed	248400	374400	524400	356400	1292400
Beginning Inventory of Raw Material Available	38400	56400	92400	62400	38400
Units of Raw material to be Purchased	210000	318000	432000	294000	1254000
Unit cost of Raw Material	$                   1.70	$                     1.70	$                      1.70	$                   1.70	$                   1.70
Cost of Raw Material to be Purchased	$ 357,000	$ 540,600	$ 734,400	$ 499,800	$ 2,131,800

*74000 x 3 x 20%