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 Year 2 First Second Third Fourth 68,000 98,000 158,000 108,000 Year 3 First 78,000 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 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.) Mink Caress Direct Materials Budget Year 2 Quarter First Second Third Fourth Year Required production in units of finished goods 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 be purchased 0

Explanation / Answer

Mink Caress Direct Material Budget - Year 2 Quarter First Second Third Fourth Year Required production in units of finished goods                                 68,000                                 98,000                               158,000                                  108,000                                  432,000 Units of raw materials needed per unit of finished goods 3 gms 3 gms 3 gms 3 gms 3 gms Units of raw materials needed to meet production                               204,000                               294,000                               474,000                                  324,000                              1,296,000 Add: Desired ending inventory 294,000*20% = 58,800 474,000*20% = 94,800 324,000*20% = 64,800 78,000*3*20% = 46,800 78,000*3*20% = 46,800 Total units of raw materials needed                               262,800                               388,800                               538,800                                  370,800                              1,342,800 Less: Beginning raw material inventory                                 40,800 294,000*20% = 58,800 474,000*20% = 94,800 324,000*20% = 64,800                                    40,800 Units of raw material to be purchased                               222,000                               330,000                               444,000                                  306,000                              1,302,000 Unit cost of raw materials $                                  1.90 $                                  1.90 $                                  1.90 $                                    1.90 $                                    1.90 Cost of raw materials to be purchased $                           421,800 $                           627,000 $                           843,600 $                             581,400 $                          2,473,800

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