Question

Two grams of musk oil are required for each bottle of Mink Caress, a very popular...

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 $1.50 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 74,000 104,000 164,000 114,000 84,000

    

    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 29,600 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.)

Homework Answers

Answer #1

Direct Materials Budget

For the Months January through March

First

Second

Third

Fourth

Total

Units to be produced

74,000

104,000

164,000

114,000

456,000

Quantity of direct materials needed per unit

2

2

2

2

2

Quantity needed for production

148,000

208,000

328,000

228,000

912,000

Desired ending inventory of direct materials

41,600 (208,000*20%)

65,600 (328,00*20%)

45,600 (228,00*20%)

33,600 (84,000*2*20%)

33,600

Total quantity needed

189,600

273,600

373,600

261,600

945,600

Beginning inventory of direct materials

(29,600)

(41,600)

(65,600)

(45,600)

(29,600)

Quantity to purchase

160,000

232,000

308,000

216,000

916,000

Cost per unit

$1.5

$1.5

$1.5

$1.5

$1.5

Total cost of direct material purchases

$240,000

$348,000

$462,000

$324,000

$1,374,000
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