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 $1.70 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 31,200 grams of musk oil will be on hand to start the first quarter of Year 2.

Required:

Prepare a direct materials budget for musk 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 78,000 108,000 168,000 118,000 88,000

Explanation / Answer

First Second Third Fourth Year Required production in units of finishedgoods 78000 108000 168000 118000 472000 Units of raw materials needed per unit of finished goods 2 2 2 2 2 Units of raw materials needed to meet production 156000 216000 336000 236000 944000 Add desired units of ending raw materials inventory 43200 67200 47200 35200 35200 Total units of raw materials needed 199200 283200 383200 271200 979200 Less units of beginning raw materials inventory 31200 43200 67200 47200 31200 Units of raw materials to be purchased. 168000 240000 316000 224000 948000 Unit cost of raw materials 1.7 1.7 1.7 1.7 1.7 Cost of raw materials to purchased 285600 408000 537200 380800 1611600

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