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 $2.10 per gram. Budgeted production of Mink Caress is given below by quarters for Year 2 and for the first quarter of Year 3: Year2 First Second Third Fourth 98,000 128,000 188,000 138,000 Year 3 First 108,000 Budgeted production, in bottles 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 78,400 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

First Second Third Fourth Year Required production in units of finishedgoods 98000 128000 188000 138000 552000 Units of raw materials needed per unit of finished goods 4 4 4 4 4 Units of raw materials needed to meet production 392000 512000 752000 552000 2208000 Add desired units of ending raw materials inventory 102400 150400 110400 86400 86400 Total units of raw materials needed 494400 662400 862400 638400 2294400 Less units of beginning raw materials inventory 78400 102400 150400 110400 78400 Units of raw materials to be purchased. 416000 560000 712000 528000 2216000 Unit cost of raw materials 2.1 2.1 2.1 2.1 2.1 Cost of raw materials to purchased 873600 1176000 1495200 1108800 4653600

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