Two grams of musk oil are required for each bottle of Mink Caress, a very popula

Question

Two 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 $1.50 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 ret Dudgeted production, in bottles 4,000104,000 164,000 114,000 84,000 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 29,600 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.)

Explanation / Answer

Workings

First Second Third Fourth Year No of Units Produced 74000 104000 164000 114000 456000 Units of Raw material needed per unit of Finished goods 2 2 2 2 2 Units of Raw material needed to meet Production 148000 208000 328000 228000 912000 Units of Raw Material at the of end of Quarter 20% 41600 65600 45600 33600 33600 Total Units of Raw material Needed 189600 273600 373600 261600 945600 Units of Raw Material at the Beginning a Quarter 20% 29600 41600 65600 45600 29600 Units of Raw material to be purchased 160000 232000 308000 216000 916000 Unit cost of Raw material 1.5 1.5 1.5 1.5 1.5 Cost of Raw material to purhcased 240000 348000 462000 324000 1374000

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