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 $1.90 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

    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 76,800 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.)

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 $1.90 per gram. Budgeted production of Mink Caress is given below by quarters for Year 2 and for the first quarter of Year 3:

Explanation / Answer

Year 1 Year 2 Quarter First Second Third Fourth First Budgeted Production 96000 126000 186000 136000 106000 Musk Oil Required for production in grams (4grms/bottle) 384000 504000 744000 544000 424000 Closing inventory 100800 148800 108800 84800 0 Opening Inventory 76800 100800 148800 108800 84800 Inventory to be purchase 408000 552000 704000 520000 339200 Cost of Musk oil per gram $         1.90 $            1.90 $            1.90 $         1.90 $         1.90 Total Purchase cost will be $ 7,75,200 $ 10,48,800 $ 13,37,600 $ 9,88,000 $ 6,44,480

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