Two grams of musk oil are required for each bottle of Mink Caress, a very popula

Question

Two 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:

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 29,600 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 74,000 104,000 164,000 114,000 84,000 Mink Caress Direct Materials Budget - Year 2 Quarter First Second Third Fourth Year Units of raw materials needed per unit of finished goods Units of raw materials needed to meet production Total units of raw materials needed Units of raw materials to be purchased Unit cost of raw materials Cost of raw materials to purchased 0 0 0

Explanation / Answer

Mink Caress Direct materials Budget -Year 2 Quarter First Second Third Fourth Year Budgeted production in bottles 74000 104000 164000 114000 456000 Units of raw materials needed per unit of Finished goods 2 2 2 2 2 Units of raw materials needed to meet production        1,48,000        2,08,000        3,28,000        2,28,000           9,12,000 Raw materials begining of quarter            29,600            41,600            65,600            45,600 Total Units of raw Materials needed        1,18,400        1,66,400        2,62,400        1,82,400           7,29,600 Raw materials end of quarter 20 % of Follow. Qtr prod. Needs            41,600            65,600            45,600            33,600 Units of raw materials to be purchased        1,60,000        232,000        3,08,000        2,16,000           9,16,000 unit cost of raw materials                 1.50                 1.50                 1.50                 1.50                   1.50 Cost of raw materials to be purchases        240,000        348,000        462,000        324,000        13,74,000

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