Exercise 7-3 Direct Materials Budget [LO7-4] Two grams of musk oil are required

Question

Exercise 7-3 Direct Materials Budget [LO7-4]

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 $2.20 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 34,400 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.)

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 $2.20 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

First Second Third Fourth Year Required production in units of finished goods 86000 116000 176000 126000 504000 Units of raw materials needed per unit of finished goods 2 2 2 2 2 Units of raw materials needed to meet produc±on 172000 232000 352000 252000 1008000 Add: Desired units of ending raw materials inventory 46400 70400 50400 38400 38400 Total units of raw materials needed 218400 302400 402400 290400 1046400 Less: Units of beginning raw materials inventory 34400 46400 70400 50400 34400 Units of raw materials needed to be purchased 184000 256000 332000 240000 1012000 Unit cost of raw materials 2.2 2.2 2.2 2.2 2.2 Cost of raw materials to purchased 404800 563200 730400 528000 2226400

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