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 $1.60 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 First Second Third Fourth Year 3 First 100,000 Budgeted production, in bottles 0,000 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 72,000 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

Direct material budget :

First Second Third Fourth Year Production units 90000 120000 180000 130000 520000 Units of raw materials needed per unit of finished goods 4 4 4 4 4 Units of raw materials needed to meet production 360000 480000 720000 520000 2080000 Add: Desired ending inventory 96000 144000 104000 80000 80000 Total units of raw material needed 456000 624000 824000 600000 2160000 less: Beginning inventory -72000 -96000 -144000 -104000 -72000 Units of raw material to be purchased 384000 528000 680000 496000 2088000 Unit cost of raw materials 1.6 1.6 1.6 1.6 1.6 Cost of raw materials to purchased 614400 844800 1088000 793600 3340800

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