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 $1.50 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: 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.)

Answer 1

Mink Caress
Direct Materials Budget- Year 2
	Quarter
	First	Second	Third	Forth	Year
Required production units of finished goods	60000	90000	150000	100000	400000
Units of raw materials needed per unit of finished goods	3	3	3	3	3
Units of raw materials needed to meet production	180000	270000	450000	300000	1200000
Add: Desired units of ending raw materials inventory	54000	90000	60000	42000	42000
Total units of raw materials needed	234000	360000	510000	342000	1242000
Less: Units of beginning raw materials inventory	(36000)	(54000)	(90000)	(60000)	(36000)
Units of raw materials to be purchased	198000	306000	420000	282000	1206000
Unit cost of raw materials	$1.50	$1.50	$1.50	$1.50	$1.50
Cost of raw materials to purchased	$297000	$459000	$630000	$423000	$1809000

Calculation of desired units of ending raw materials inventory

Quarter

First= 270000*20%= 54000

Second= 450000*20%= 90000

Third= 300000*20%= 60000

Fourth= 70000*3*20%= 42000