Three grams of musk oil are required for each bottle of Mink Caress, a very popu

Question

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 $1.90 per gram. Budgeted production of Mink Caress is given below by quarters for Year 2 and for the first quarter of 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 40,800 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 68,000 98,000 158,000 108,000 78,000

Explanation / Answer

Prepare a direct materials budget for musk oil, by quarter and in total, for Year 2.

1st quarter 2nd quarter 3rd quarter 4th quarter year Budgeted production in bottles 68000 98000 158000 108000 432000 Musk oil (direct material) required for each bottle 3 3 3 3 3 Musk oil (direct material) required for production 204000 294000 474000 324000 1296000 Add: Desired ending inventory of Musk oil(direct material) 58800 94800 64800 46800 46800 Total needs 262800 388800 538800 370800 1342800 Less; beginning inventory of musk oil (direct material) (40800) (58800) (94800) (64800) (40800) Musk Oil (Direct material) purchase quantity 222000 330000 444000 306000 1302000 rate per gram 1.90 1.90 1.90 1.90 1.90 Musk Oil (Direct material) purchase cost 421800 627000 843600 581400 2473800

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