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 $1.60 per gram. Budgeted production of Mink Caress is given below by quarters for Year 2 and for the first quarter of Year 3 Year2 First Second Third Fourth 62,000 92, 000 152,000 102,000 Year 3 First 72,000 Budgeted production, in bottles 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 37,200 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 0 0 Units of raw materials to be purchased Unit cost of raw materials Cost of raw materials to purchased

Explanation / Answer

Direct material budget :

First Second Third Fourth Year Production units 62000 92000 152000 102000 408000 Raw material per unit 3 3 3 3 3 Raw material for production 186000 276000 456000 306000 1224000 Add: Desired ending inventory 55200 91200 61200 43200 43200 Total needs 241200 367200 517200 349200 1267200 Less: Beginning inventory (37200) (55200) (91200) (61200) (37200) Raw material purchase 204000 312000 426000 288000 1230000 Rate per gram 1.6 1.6 1.6 1.6 1.6 Raw material purchase cost 326400 499200 681600 460800 1968000

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