Question

Exercise 8-3 Direct Materials Budget [LO8-4]

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

Direct material budget :

	first	second	Third	Fourth	Year
Production units	80000	110000	170000	120000	480000
Raw material per unit	2	2	2	2	2
Raw material needed for production	160000	220000	340000	240000	960000
Add: Desired ending inventory	44000	68000	48000	36000	36000
Total	204000	288000	388000	276000	996000
Less; Beginning inventory	-32000	-44000	-68000	-48000	-32000
Raw material purchase	172000	244000	320000	228000	964000
Cost per gram	1.80	1.80	1.80	1.80	1.80
Raw material purchase cost	309600	439200	576000	410400	1735200