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 $1.90 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	82,000	112,000	172,000	122,000		92,000

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 32,800 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
Required production in units of finished goods	82,000	112,000	172,000	122,000	488,000
Units of raw materials needed per unit of finished goods	4	4	4	4	4
Units of raw materials needed to meet production	328,000	448,000	688,000	488,000	1,952,000
Add: Desired units of ending raw materials inventory	89,600	137,600	89,600	73,600	73,600
Total units of raw materials needed	417,600	585,600	777,600	561,600	2,025,600
Less: Units of beginning raw materials inventory	32,800	89,600	137,600	89,600	32,800
Units of raw materials to be purchased	384,800	496,000	640,000	472,000	1,992,800
Unit cost of raw materials	$1.90	$1.90	$1.90	$1.90	$1.90
Cost of raw materials to purchased	$731,120	$942,400	$1,216,000	$896,800	$3,786,320