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 $1.80 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 32,000 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.)

Year 2

Year 3

First Second Third Fourth First Budgeted production, in bottles 80,000 110,000 170,000 120,000 90,000

Explanation / Answer

Mink Caress

Mink Caress

Direct Materials Budget - Year 2 Quarter First Second Third Fourth Year Required production in units of finished goods 80,000 110,000 170,000 120,000 480,000 Units of raw materials needed per unit of finished goods 2 2 2 2 2 Units of raw materials needed to meet production 160000 220000 340000 240000 960000 Add: Desired units of ending raw materials inventory 44000 68000 48000 36000 36000 Total units of raw materials needed 204000 288000 388000 276000 996000 Less: Units of beginning raw materials inventory 32000 44000 68000 48000 32000 Units of raw materials to be purchased 172000 244000 320000 228000 964000 Unit cost of raw materials $1.80 $1.80 $1.80 $1.80 $1.80 Cost of raw materials to purchased $309,600 $439,200 $576,000 $410,400 $1,735,200

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