Question

EXERCISE 8-3 Direct Materials Budget L08-4Q 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: First 60,000 Year 2 Second Third 90,000 150,000 Fourth 100,000 Year 3 First 70,000 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 36,000 grams of musk oil will be on hand to start the first quarter of Year 2. Required: Using Schedule 3 @ as your guide, prepare a direct materials budget for musk oil, by quarter and in total, for Year 2. Page 393

Answer 1

Solution

Mink Caress
Direct Materials Budget
	Quarter
	First	Second	Third	Forth	Year
Required Production in Units of Finished Goods	60000	90000	150000	100000	400000
Units of Raw material needed per Unit of Fished Goods	3	3	3	3	3
Units of Raw material needed to meet Production	180000	270000	450000	300000	1200000
Desired Ending Inventory of Raw Material	54000	90000	60000	42000*	42000
Total Units of Raw material Needed	234000	360000	510000	342000	1242000
Beginning Inventory of Raw Material Available	36000	54000	90000	60000	36000
Units of Raw material to be Purchased	198000	306000	420000	282000	1206000
Unit cost of Raw Material	$                   1.50	$                     1.50	$                      1.50	$                   1.50	$                   1.50
Cost of Raw Material to be Purchased	$ 297,000	$ 459,000	$ 630,000	$ 423,000	$ 1,809,000

*70000 x 3 x 20%