Three grams of musk oil are required for each bottle of Mink Caress, a very popu
ID: 2447690 • Letter: T
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 $1.50 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 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. (Round Unit cost of raw materials answers to 2 decimal places.)Explanation / Answer
Answer:
Mink Cares
Direct Materials Budget - Year 2
First Second Third Fourth Year
Require production in units of
Finished Goods (A) 60,000 90,000 150,000 100,000 400,000
Units of Raw Materials needed
per unit of finished Goods (B) 3 3 3 3 3
Units of raw materials needed to
meet production (A*B) 180,000 270,000 450,000 300,000 1,200,000
Less: Beginning Inventories 54,000 90,000 60,000 36,000
Total units of raw material needed 234,000 360,000 510,000 342,000 1,242,000
Less: Units of Beginning raw
Material Inventory 36000 54000 90000 60000 36,000
Units of Raw Matrials
to be Purchased 198,000 306,000 420,000 282,000 1,206,000