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 $2.20 per gram. Budgeted production of Mink Caress is given below by quarters for Year 2 and for the first quarter of Year 3:
Budget Production, in bottles

Year 2:
First 72,000
Second 102,000
Third 162,000
Fourth: 112,000

Year 3:
First 82,000

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.

Answer 1

Answer and Explanation:

Musk oil Direct Materials Budget - Year 2

Quarter First Second Third

Required production in units of finish goods72,000 102,000 162,000

Units of raw materials needed per unit of finished goods 333

Units of raw materials needed to meet production 216000 306000 486000

Add: Desired units of ending raw materials inventory 43200

Total units of raw materials needed 331203 408003 648003

Less: Units of beginning raw materials inventory43200 43200 0

Units of raw material needed to be purchased288003 364803 648003

Unit cost of raw materials2.2 2.2 2.2

Cost of raw materials to purchased 633606.6 802566.6 1425606.6

FourthYear

112,000 448000

3 3

336000 1344000

448003 1792003

0 43200

448003 1748803

2.2 2.2

985606.6 3847366.6