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 $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.

Y2 First Y2 Second Y2 Third Y2 Fourth Y3 First

Budgeted production, in bottles 96,000 126,000 186,000 136,000 104,000

Required:

Prepare a direct materials budget for musk oil, by quarter and in total, for Year 2.

Answer and Explanation:

The preparation of Direct material budget is shown below:-

                                   First       Second     Third        Fourth         Year

Required production

in units of

Finished Goods   $96,000    $126,000   $186,000  $136,000  $544,000

Units of raw material

needed per unit of

Finished Goods       4                 4                  4                 4            4

Units of raw material

needed to meet

production            $384,000 $504,000  $744,000   $544,000 $2,176,000

Add: Desired ending

Finished goods      $100800  $148,800   $108,800   $84,800    $84,800

Total units of

Raw material

needed              $484,800     $652,800   $852,800 $628,800 $2,260,800

Less: Beginning

inventory           ($76,800)     ($100,800)   ($148,800) ($108,800)  ($76,800)

Units of raw material

to be purchased $408,000  $552,000   $704,000  $520,000 $2,184,000

Units cost of Raw

Material                 $1.90        $1.90             $1.90         $1.90         $1.90

Cost of Raw Material

Purchased         $775,200  $1,048,800  $1,337,600 $988,000 $4,149,600

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