EXERCISE 8-3 Direct Materials Budget Three grams of musk oil are required for ea
ID: 2565204 • Letter: E
Question
EXERCISE 8-3 Direct Materials Budget Three 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 $1.50 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 First Second Third Fourth First Budgeted production, in bottles 60,000 90,000 150,000 100,000 70,000 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 36,000 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. At the bottom of your budget, show the amount of purchases for each quarter and for the year in total.Explanation / Answer
AMOUNT OF PURCHASES FOR EACH QUARTER AND FOR THE YEAR IN TOTAL
(1) Row - 1 ( production in terms of bottles ) is only a presentation and does not enter calculation.
(2) values of raw material needed are obtained by multiplying production with 3 grams each
(3) End inventory is added and beginning inventory is deducted for getting matrial to be purchased.
(4) End inventory of Q1 - 20% of Q2 Material requirement = 270000 * 20%.............For Q2 = 20% of Q3 i.e 20% of 450000. and so on. However when computing for Q4........ we take Q1 (of third year) i.e ... 70000 * 3 = 210000 required for production and inventory = 20% ( 210000) = 42000.
(5) End inventory of Q1 shall be beginning inventory for Q2........and so on.
Q1 Q2 Q3 Q4 Total Budgeted production in Bottles 60000 90000 150000 100000 400000 Raw material need @ 3 grms per bottle Production * 3 = values in grams 180000 270000 450000 300000 1200000 (+) Desired end inventory of Raw materil 54000 90000 60000 42000 42000 (-) Beginning inventory of raw material 36000 54000 90000 60000 36000 Raw material required to be purchased 198000 306000 420000 282000 1206000 Amount of purchases @ $1.50 per gram 297000 459000 630000 423000 1809000Related Questions
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