hree grams of musk oil are required for each bottle of Mink Caress, a very popul

Question

hree 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 $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: Year2 Year3 First 82,000 First Second Third Fourth Budgeted production, in bottles 72,000 102,000 162,000 112,000 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 43,200 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.) 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

Explanation / Answer

First Second Third Fourth Year Required produc±on in units of finished goods 72000 102000 162000 112000 448000 Units of raw materials needed per unit of finished goods 3 3 3 3 3 Units of raw materials needed to meet produc±on 216000 306000 486000 336000 1344000 Add: Ending inventory 61200 97200 67200 49200 49200 Total units of raw materials needed 277200 403200 553200 385200 1393200 Less beginning inventory 43200 61200 97200 67200 43200 Units of raw materials to be purchased 234000 342000 456000 318000 1350000 Unit cost of raw materials 2.2 2.2 2.2 2.2 2.2 Cost of raw materials to be purchased 514800 752400 1003200 699600 2970000

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