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 $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 Pirst Second Third Fourth Year 3 First 104,000 Budgeted production, in bottles 94,000 124,000 184,000 134,000 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 quarters production needs. Some 75.200 grams of musk oil will be on hand to start the first quarter of Year 2 Required: Prepare a direct materials budget for musk oll,by quarter and in total, for Year 2. (Round "Unit cost of raw materials" answers to2 decimal places.)

Explanation / Answer

First Second Third Fourth Year Required production in units of finished goods 94000 124000 184000 134000 536000 Units of raw materials needed per unit of finished goods 4 4 4 4 4 Units of raw materials needed to meet production 376000 496000 736000 536000 2144000 Add: Desired units of ending raw materials inventory 99200 147200 107200 83200 83200 Total units of raw materials needed 475200 643200 843200 619200 2227200 Less: Units of beginning raw materials inventory 75200 99200 147200 107200 75200 Units of raw materials to be purchased 400000 544000 696000 512000 2152000 Unit cost of raw materials 1.8 1.8 1.8 1.8 1.8 Cost of raw materials to purchased 720000 979200 1252800 921600 3873600

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