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

Four 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 $2.10 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	98,000	128,000	188,000	138,000		108,000

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 quarters production needs. Some 78,400 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.

Mink Caress
Direct Materials Budget - Year 2
	Quarter
	First	Second	Third	Fourth	Year
Required production in units of finished	98,000 answer correct	128,000 selected answer correct	188,000 selected answer correct	138,000 selected answer correct	108,000 selected answer incorrect
Units of raw materials needed per unit of finished goods	3 selected answer incorrect	3 selected answer incorrect	3 selected answer incorrect	3 selected answer incorrect	3 selected answer incorrect
Units of raw materials needed to meet production	294,000	384,000	564,000	414,000	324,000
Less: Desired units of ending raw materials inventory selected answer incorrect	76,800 selected answer incorrect	112,800 selected answer incorrect	82,800 selected answer incorrect	64,800 selected answer incorrect	64,800 selected answer incorrect
Total units of raw materials needed	370,800 selected answer incorrect	496,800 selected answer incorrect	646,800 selected answer incorrect	478,800 selected answer incorrect	1,720,800 selected answer incorrect
Add: Units of beginning raw materials inventory selected answer incorrect	(78,400) selected answer correct	(102,400) selected answer correct	(150,400) selected answer correct	(110,400) selected answer correct	(441,600) selected answer incorrect
Units of raw materials to be purchased	292,400 selected answer incorrect	394,400 selected answer incorrect	496,400 selected answer incorrect	368,400 selected answer incorrect	1,279,200 selected answer incorrect
Unit cost of raw materials	$2.10 selected answer correct	$2.10 selected answer correct	$2.10 selected answer correct	$2.10 selected answer correct	$2.10 selected answer correct
Cost of raw materials to purchased	$614,040	$828,240	$1,042,440	$773,640	$2,686,320