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Exercise 8-3 Direct Materials Budget [LO8-4] Four grams of musk oil are required for each bottle...

Exercise 8-3 Direct Materials Budget [LO8-4]

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 $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 98,000 128,000 188,000 138,000 108,000

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 78,400 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.

Mink Caress
Direct Materials Budget - Year 2
Quarter
First Second Third Fourth Year
Required production in units of finished

98,000

answer correct

128,000

selected answer correct

188,000

selected answer correct

138,000

selected answer correct

108,000

selected answer incorrect

Units of raw materials needed per unit of finished goods

3

selected answer incorrect

3

selected answer incorrect

3

selected answer incorrect

3

selected answer incorrect

3

selected answer incorrect

Units of raw materials needed to meet production 294,000 384,000 564,000 414,000 324,000

Less: Desired units of ending raw materials inventory

selected answer incorrect

76,800

selected answer incorrect

112,800

selected answer incorrect

82,800

selected answer incorrect

64,800

selected answer incorrect

64,800

selected answer incorrect

Total units of raw materials needed

370,800

selected answer incorrect

496,800

selected answer incorrect

646,800

selected answer incorrect

478,800

selected answer incorrect

1,720,800

selected answer incorrect

Add: Units of beginning raw materials

inventory

selected answer incorrect

(78,400)

selected answer correct

(102,400)

selected answer correct

(150,400)

selected answer correct

(110,400)

selected answer correct

(441,600)

selected answer incorrect

Units of raw materials to be purchased

292,400

selected answer incorrect

394,400

selected answer incorrect

496,400

selected answer incorrect

368,400

selected answer incorrect

1,279,200

selected answer incorrect

Unit cost of raw materials

$2.10

selected answer correct

$2.10

selected answer correct

$2.10

selected answer correct

$2.10

selected answer correct

$2.10

selected answer correct

Cost of raw materials to purchased $614,040 $828,240 $1,042,440 $773,640 $2,686,320

Solutions

Expert Solution

Answer-

Mink Caress
Direct Material Budget-Year 2
Quarter
Particulars First Second Third Fourth Year
Required production in units of finished goods (a) 98000 128000 188000 138000 552000
Units of raw material required per units of finshed goods (b) 4 4 4 4 4
Units of raw material needed to meet production a*b=(c) 392000 512000 752000 552000 2208000
Add:- Desired units of ending raw material inventory 512000*20%=102400 752000*20%=150400 552000*20%=110400 432000*20%=86400 449600
Total units of raw material needed 494400 662400 862400 638400 2478000
Less:-Units of opening raw material inventory 78000 102400 150400 110400 441200
Units of raw material to be purchased (d) 416400 560000 712000 528000 2216400
Unit cost of raw material (e) $2.10 $2.10 $2.10 $2.10 $2.10
Cost of raw materials to be purchased (f=d*e) $ 874440 1176000 1495200 1108800 4654440

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