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Three ounces of zinc oxide are required for each bottle of Hawaiian Gold, a suntan lotion made in Orange, California. The zinc oxide cost is
Three ounces of zinc oxide are required for each bottle of Hawaiian Gold, a suntan lotion made in Orange, California. The zinc oxide cost is $2.20 per ounce. Budgeted production of Hawaiian Gold is given below by quarters for Year 2 and for the first quarter of Year 3: First 72,000 Year 2 Second Third Fourth 102,000 162,000 112,000 Year 3 First 82,000 Budgeted production, in bottles There is a high demand for zinc oxide which requires the company to have large inventories of the ingredient in case of a shortage. For this reason, the zinc oxide inventory at the end of a quarter must be equal to 20% of the following quarter's production needs. Some 43,200 ounces of zinc oxide will be on hand to start the first quarter of Year 2. Required: Prepare a direct materials budget for zinc oxide, by quarter and in total, for Year 2. First Third Fourth Year Hawaiian Gold Direct Materials Budget - Year 2 Quarter Second 72,000 10,200 Units of raw materials needed per unit of finished goods 3 Units of raw materials needed to meet production 216,000 30,600 Add: Desired units of ending raw materials inventory 6,120 97,200 Total units of raw materials needed 112,000 356,200 162,000 3 3 3 336,000 1,068,600 486,000 67,200 Units of raw materials to be purchased Unit cost of raw materials Cost of raw materials to purchased $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20
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