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. (Round "Unit cost of raw materials" answers to 2 decimal places.)

Mink Caress
Direct Materials Budget - Year 2
	Quarter
	First	Second	Third	Fourth	Year
Units of raw materials needed per unit of finished goods
Units of raw materials needed to meet production
Total units of raw materials needed	0	0	0	0
Units of raw materials to be purchased	0	0	0	0	0
Unit cost of raw materials
Cost of raw materials to purchased

Answer 1

Answer-

Mink Cares
Direct Material Purchase Budget- Year 2
	Quarter
Particluars	First	Second	Third	Fourth	Year
Production units (a)	72000	102000	162000	112000	448000
Grams required each unit of raw material (b)	3 grams	3 grams	3 grams	3 grams	3 grams
Total grams required (c=a*b	216000	306000	486000	336000	1344000
Add:- Closing Inventory 20% of next month production units	306000 grams*20%= 61200 grams	486000 grams*20%= 97200 grams	336000 grams*20%= 67200 grams	246000 grams*20%= 49200 grams	274800
Less:- Opening Inventory	43200 grams	61200 grams	97200 grams	67200 grams	268800
Direct material purchase (in grams) (a)	234000	342000	456000	318000	1350000
Material cost per grams (b)	$2.20	$2.20	$2.20	$2.20	$2.20
Direct Material cost (c=a*b)	514800	752400	1003200	699600	2970000