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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

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