Three grams of musk oil are required for each bottle of Mink Caress, a very popu

Question

Three 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 $1.60 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 37,200 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.)

Year 2

Year 3

First Second Third Fourth First   Budgeted production, in bottles 62,000 92,000 152,000 102,000       72000

Explanation / Answer

_________

Notes:

1) Calculation of Ending Inventory is given below:

Ending Inventory Quarter 1 = Total Raw Material Required for Production (Quarter 2)*20% = 276,000*20% = 55,200

Ending Inventory Quarter 2 = Total Raw Material Required for Production (Quarter 3)*20% = 456,000*20% = 91,200

Ending Inventory Quarter 3 = Total Raw Material Required for Production (Quarter 4)*20% = 306,000*20% = 61,200

Ending Inventory Quarter 4 = Total Raw Material Required for Production (Quarter 1- Year 3)*20% = 72,000*3*20% = 43,200

2) The beginning inventory is equal to the ending inventory of the previous quarter.

Mink Caress Direct Materials Budget Year 2 Quarter First Second Third Fourth Year Estimated Budgeted Production 62,000 92,000 152,000 102,000 408,000 Raw Material Required Per Unit 3 3 3 3 3 Total Raw Material Required for Production 186,000 276,000 456,000 306,000 122,4000 Add Desired Ending Inventory (20%) 55,200 91,200 61,200 43,200 43,200 Total Raw Material Required 241,200 367,200 517,200 349,200 1,267,200 Less Opening Inventory 37,200 55,200 91,200 61,200 37,200 Total Raw Material ro be Purchased 204,000 312,000 426,000 288,000 1,230,000 Cost of Musk Oil Per Gram 1.6 1.6 1.6 1.6 1.6 Total Cost of Raw Material $326,400 $499,200 $681,600 $460,800 $1,968,000

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