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 $1.50 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 60,000 90,000 150,000 100,000 70,000
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 36,000 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

Answer:

1. Direct Materials Budget  Units( bottles)    66,000    102,000   140,000    94,000 Total 452,000

2. Costs Raw Materials   $ 297,000 $ 459,000  $ 630,000  $ 423,000  

Total 2034,000

Explanation:

Direct Materials Budget in Bottles & Grams

                                                   Year 2                                          Year 3

                                       First        Second       Third         Fourth      First

Budgeted production, 60,000     90,000    150,000    100,000    70,000

Desired Ending Inventory

20 % 0f the Production   18,000   30,000    20,000      14,000

Less Beginning Inventory  

36,000/ 3                       12,000     18,000   30,000    20,000      14,000

D. Materials Budget     66,000    102,000   140,000    94,000

Grams in a Bottle             3              3               3                3          

Raw Materials gms     198,000     306,000   420,000    282,000

Costs                             $1.50           $1.50        $1.50          $1.50      

Costs Raw Materials   $ 297,000 $ 459,000  $ 630,000  $ 423,000

We add the desired ending inventory to the budgeted production and subtract the beginning inventory to get the direct materials budget in bottles. This is again multiplied with 3 gms and the cost per gram to get the total costs of the total grams. Each bottle contains 3 grams.

Direct Materials Budget in Bottles & Grams

                                                   Year 2                                        

                                       First        Second       Third         Fourth      Total

Budgeted production, 60,000     90,000    150,000    100,000    450,000

Add Desired Ending Inventory

20 % 0f the Production   18,000   30,000    20,000      14,000     82,000

Less Beginning Inventory  

36,000/ 3                 12,000     18,000   30,000    20,000      80,000          

D. Materials     66,000    102,000   140,000    94,000   452,000

Grams in a Bottle       3              3               3                3                 3              

Raw Materials      198,000     306,000   420,000  282,000   1356,000

Costs                      $1.50           $1.50        $1.50          $1.50        1.50          

Costs Raw Materials   $ 297,000 $ 459,000  $ 630,000  $ 423,000

Total  $ 2034,000