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 westem Siberia. The cost of the musk oil is $2.20 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 110,000 Budgeted production, in bottles 100,000 130,000 190,000 140,000 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 80,000 grams of musk oil will be on hand to start the first quarter of Year 2 Prepare a direct materials budget for musk oll, by quarter and in total, for Year 2·(Round "Unit cost of raw materials" answers to 2 declmal places.) Mink Caress Direct Materials Budget Year 2 Quarter First Second Third Fourth Year d production in units of finished goods 100,000 130,000 190,000 140,000 560,000 Units of raw materials needed per unit of finished goods Units of raw materials needed to meet production Add: Desired units of ending raw materials inventory Total units of raw materials needed Units of beginning raw materials inventory Units of raw materials to be purchased Unit cost of raw materials Cost of raw materials to purchased

Explanation / Answer

Direct Material Purchase Budget is as prepared below:

Working:

Mink Caress Direct Materials Budget-Year 2 Quarter Particulars First Second Third Fourth Year Required production in units of finished goods 100,000 130,000 190,000 140,000 560,000 Units of raw material needed per unit of finished goods 4 4 4 4 4 Units of raw material needed to meet production 400,000 520,000 760,000 560,000 2,240,000 Add: Desired units of ending raw material inventory 104,000 152,000 112,000 88,000 88,000 Total units of raw material needed 504,000 672,000 872,000 648,000 2,328,000 Less: Units of beginning raw material inventory 80,000 104,000 152,000 112,000 80,000 Units of raw material to be purchased 424,000 568,000 720,000 536,000 2,248,000 Unit cost of raw material 2.20 2.20 2.20 2.20 2.20 Cost of raw material to be purchased 932,800 1,249,600 1,584,000 1,179,200 4,945,600

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