Three grams of musk oil are required for each bottle of Mink Caress, a very popu
ID: 2540141 • 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 $2.10 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
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 42,000 grams of musk oil will be on hand to start the first quarter of Year 2.
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.)
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 $2.10 per gram. Budgeted production of Mink Caress is given below by quarters for Year 2 and for the first quarter of Year 3:
Explanation / Answer
Prepare a direct materials budget for musk oil, by quarter and in total, for Year 2.
First Second Third Fourth Year Budgeted production 70000 100000 160000 110000 440000 Raw material per unit 3 3 3 3 3 Raw material used in production 210000 300000 480000 330000 1320000 Add: Desired ending inventory 60000 96000 66000 48000 48000 Total 270000 396000 546000 378000 1368000 Less; Beginning inventory (42000) (60000) (96000) (66000) (42000) Direct material purchase 228000 336000 450000 312000 1326000 Cost per grams 2.10 2.10 2.10 2.10 2.1 Direct material purchase cost 478800 705600 945000 655200 2784600