In: Accounting
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 |
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 |