Four grams of musk oil are required for each bottle of Mink Caress, a very popul

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 $1.70 per gram. Budgeted production of Mink Caress is given below by quarters for Year 2 and for the first quarter of Year 3: 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 73,600 grams of musk oil will be on hand to start the first quarter of Year 2. 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.)

Explanation / Answer

dIrect materiAL budget Quarter 1 2 3 4 year Require Product units of finished goods 92000 122000 182000 132000 528000 Units of raw material per unit of finished goods 4 4 4 4 4 Units of raw material needed to meet production 368000 488000 728000 528000 2112000 Ending Inventory desired 97600   [488000*.20] 145600 [728000*.20] 105600   [528000*.20] 81600   [102000*4*.20] 430400 Total units of raw material needed 465600 633600 833600 609600 2542400 Less Beginning inventory -73600 -97600 -145600 -81600 -398400 Raw material to purchased 392000 536000 688000 528000 2144000 cost per unit 1.7 1.7 1.7 1.7 1.7 cost of raw material purchased 666400 911200 1169600 897600 3644800

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