Question

Two 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 $1.80 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 80,000 110,000 170,000 120,000 90,000 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 32,000 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

	Year 2				Year 3
	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Quarter 1
Budgeted Production	80,000	110,000	170,000	120,000	90,000

Musk Oil Purchase Budget in Grams

	Year 2
	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Total
Budgeted Production	80,000	110,000	170,000	120,000	480,000
Required (Production*2)	160,000	220,000	340,000	240,000	960,000
+ Desired Closing Ctock = Next month requirement*20%	44,000	68,000	48,000	36,000	196,000
-Opening Stock	32,000	44,000	68,000	48,000	192,000
Purchases (grams)	172,000	244,000	320,000	228,000	964,000

Note: Closing Stock for Quarter 4 = Production of first quarter of year 3*2*20%

= 90,000*2*20% = 36,000