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 $1.50 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.)

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