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 $1.60 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	76,000	106,000	166,000	116,000	86,000

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 30,400 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

	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year
Budgeted production	76,000	106,000	166,000	116,000	464,000
Materials required per unit	2	2	2	2	2
Materials required for production	152,000	212,000	332,000	232,000	928,000
Desired ending inventory of materials	42,400 (212,000*20%)	66,400 (332,000*20%)	46,400 (232,000*20%)	34,400 (86,000*2*20%)	34,400
Total materials needs	194,400	278,400	378,400	266,400	962,400
Beginning inventory of materials	(30,400)	(42,400)	(66,400)	(46,400)	(30,400)
Materials to be purchased	164,000	236,000	312,000	220,000	932,000
Materials cost (per gram)	$1.6	$1.6	$1.6	$1.6	$1.6
Total cost of Direct materials	$262,400	$377,600	$499,200	$352,000	$1,491,200