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 $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 First Second Third Fourth First Budgeted production, in bottles 100,000 130,000 190,000 140,000 110,000 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 80,000 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

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.)

First Second Third Fourth Year Production units 100000 130000 190000 140000 560000 Raw material per unit 4 4 4 4 4 Raw material need for production 400000 520000 760000 560000 2240000 Add: Desired ending inventory 104000 152000 112000 88000 88000 Total needs 504000 672000 872000 648000 2328000 Less: Beginning inventory -80000 -104000 -152000 -112000 -80000 Raw material purchase (QTY) 424000 568000 720000 536000 2248000 Cost per grams 2.2 2.2 2.2 2.2 2.2 Raw material purchase cost 932800 1249600 1584000 1179200 4945600

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