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:

	Year 2					Year 3
	First	Second	Third	Fourth		First
Budgeted production, in bottles	72,000	102,000	162,000	112,000		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.

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
Add: Desired units of ending raw materials inventory
Total units of raw materials needed
Less: Units of beginning raw materials inventory
Units of raw materials to be purchased
Unit cost of raw materials
Cost of raw materials to purchased

Answer 1