Question
Three grams of musk oil are required for each bottle of Mink Caress, a popular perfume made by a company in western Siberia. The cost of the musk oil is $1.50 per gram. Budgeted quarterly production of Mink Caress is given below for Year 2 and 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
The inventory of musk oil at the end of a quarter must equal 20% of the following quarter’s production needs. A total of 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.
Year 2 Year 3
First Second Third Fourth First
Budgeted production, in bottles 60,000 90,000 150,000 100,000 70,000
The inventory of musk oil at the end of a quarter must equal 20% of the following quarter’s production needs. A total of 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.
Answers
Answered by
GPT-4o mini
To prepare a direct materials budget for musk oil for Mink Caress in Year 2, we’ll follow these steps:
1. **Calculate the total amount of musk oil needed for production each quarter.**
2. **Determine the desired ending inventory of musk oil for each quarter.**
3. **Calculate the total amount of musk oil required for each quarter.**
4. **Determine how much musk oil should be purchased each quarter, considering the beginning inventory.**
### Step 1: Calculate Total Musk Oil Needed for Production
Each bottle of Mink Caress requires 3 grams of musk oil.
**Calculations**:
- Total grams needed for each quarter = (Budgeted production in bottles) × (3 grams per bottle)
#### Year 2:
- First Quarter: \( 60,000 \, \text{bottles} \times 3 \, \text{grams/bottle} = 180,000 \, \text{grams} \)
- Second Quarter: \( 90,000 \, \text{bottles} \times 3 \, \text{grams/bottle} = 270,000 \, \text{grams} \)
- Third Quarter: \( 150,000 \, \text{bottles} \times 3 \, \text{grams/bottle} = 450,000 \, \text{grams} \)
- Fourth Quarter: \( 100,000 \, \text{bottles} \times 3 \, \text{grams/bottle} = 300,000 \, \text{grams} \)
### Step 2: Calculate Desired Ending Inventory
The ending inventory must equal 20% of the following quarter's production needs.
#### Year 2:
- First Quarter: 20% of Second Quarter's needs = \( 20\% \times 270,000 \, \text{grams} = 54,000 \, \text{grams} \)
- Second Quarter: 20% of Third Quarter's needs = \( 20\% \times 450,000 \, \text{grams} = 90,000 \, \text{grams} \)
- Third Quarter: 20% of Fourth Quarter's needs = \( 20\% \times 300,000 \, \text{grams} = 60,000 \, \text{grams} \)
- Fourth Quarter: 20% of Year 3’s First Quarter needs = \( 20\% \times (70,000 \, \text{bottles} \times 3 \, \text{grams/bottle}) = 20\% \times 210,000 = 42,000 \, \text{grams} \)
### Step 3: Calculate Total Musk Oil Required for Each Quarter
Total required = Production needs + Desired ending inventory
#### Year 2:
- First Quarter:
- Total Required = \( 180,000 \, \text{grams} + 54,000 \, \text{grams} = 234,000 \, \text{grams} \)
- Second Quarter:
- Total Required = \( 270,000 \, \text{grams} + 90,000 \, \text{grams} = 360,000 \, \text{grams} \)
- Third Quarter:
- Total Required = \( 450,000 \, \text{grams} + 60,000 \, \text{grams} = 510,000 \, \text{grams} \)
- Fourth Quarter:
- Total Required = \( 300,000 \, \text{grams} + 42,000 \, \text{grams} = 342,000 \, \text{grams} \)
### Step 4: Calculate Purchases Each Quarter
Purchases needed = Total required - Beginning inventory
- **Beginning inventory at the start of Year 2** = 36,000 grams
#### Year 2:
- First Quarter:
- Purchases = \( 234,000 \, \text{grams} - 36,000 \, \text{grams} = 198,000 \, \text{grams} \)
- Second Quarter:
- Beginning inventory = Desired ending inventory from First Quarter = 54,000 grams
- Purchases = \( 360,000 \, \text{grams} - 54,000 \, \text{grams} = 306,000 \, \text{grams} \)
- Third Quarter:
- Beginning inventory = Desired ending inventory from Second Quarter = 90,000 grams
- Purchases = \( 510,000 \, \text{grams} - 90,000 \, \text{grams} = 420,000 \, \text{grams} \)
- Fourth Quarter:
- Beginning inventory = Desired ending inventory from Third Quarter = 60,000 grams
- Purchases = \( 342,000 \, \text{grams} - 60,000 \, \text{grams} = 282,000 \, \text{grams} \)
### Summary of Direct Materials Budget for Musk Oil
| Quarter | Production (bottles) | Production Needs (grams) | Desired Ending Inventory (grams) | Total Required (grams) | Beginning Inventory (grams) | Purchases Needed (grams) |
|--------------|-----------------------|--------------------------|----------------------------------|------------------------|-----------------------------|--------------------------|
| Year 2 Q1 | 60,000 | 180,000 | 54,000 | 234,000 | 36,000 | 198,000 |
| Year 2 Q2 | 90,000 | 270,000 | 90,000 | 360,000 | 54,000 | 306,000 |
| Year 2 Q3 | 150,000 | 450,000 | 60,000 | 510,000 | 90,000 | 420,000 |
| Year 2 Q4 | 100,000 | 300,000 | 42,000 | 342,000 | 60,000 | 282,000 |
| **Total** | | | | **1,726,000** | | **1,206,000** |
This budget details the requirements and purchases of musk oil for each quarter of Year 2.
1. **Calculate the total amount of musk oil needed for production each quarter.**
2. **Determine the desired ending inventory of musk oil for each quarter.**
3. **Calculate the total amount of musk oil required for each quarter.**
4. **Determine how much musk oil should be purchased each quarter, considering the beginning inventory.**
### Step 1: Calculate Total Musk Oil Needed for Production
Each bottle of Mink Caress requires 3 grams of musk oil.
**Calculations**:
- Total grams needed for each quarter = (Budgeted production in bottles) × (3 grams per bottle)
#### Year 2:
- First Quarter: \( 60,000 \, \text{bottles} \times 3 \, \text{grams/bottle} = 180,000 \, \text{grams} \)
- Second Quarter: \( 90,000 \, \text{bottles} \times 3 \, \text{grams/bottle} = 270,000 \, \text{grams} \)
- Third Quarter: \( 150,000 \, \text{bottles} \times 3 \, \text{grams/bottle} = 450,000 \, \text{grams} \)
- Fourth Quarter: \( 100,000 \, \text{bottles} \times 3 \, \text{grams/bottle} = 300,000 \, \text{grams} \)
### Step 2: Calculate Desired Ending Inventory
The ending inventory must equal 20% of the following quarter's production needs.
#### Year 2:
- First Quarter: 20% of Second Quarter's needs = \( 20\% \times 270,000 \, \text{grams} = 54,000 \, \text{grams} \)
- Second Quarter: 20% of Third Quarter's needs = \( 20\% \times 450,000 \, \text{grams} = 90,000 \, \text{grams} \)
- Third Quarter: 20% of Fourth Quarter's needs = \( 20\% \times 300,000 \, \text{grams} = 60,000 \, \text{grams} \)
- Fourth Quarter: 20% of Year 3’s First Quarter needs = \( 20\% \times (70,000 \, \text{bottles} \times 3 \, \text{grams/bottle}) = 20\% \times 210,000 = 42,000 \, \text{grams} \)
### Step 3: Calculate Total Musk Oil Required for Each Quarter
Total required = Production needs + Desired ending inventory
#### Year 2:
- First Quarter:
- Total Required = \( 180,000 \, \text{grams} + 54,000 \, \text{grams} = 234,000 \, \text{grams} \)
- Second Quarter:
- Total Required = \( 270,000 \, \text{grams} + 90,000 \, \text{grams} = 360,000 \, \text{grams} \)
- Third Quarter:
- Total Required = \( 450,000 \, \text{grams} + 60,000 \, \text{grams} = 510,000 \, \text{grams} \)
- Fourth Quarter:
- Total Required = \( 300,000 \, \text{grams} + 42,000 \, \text{grams} = 342,000 \, \text{grams} \)
### Step 4: Calculate Purchases Each Quarter
Purchases needed = Total required - Beginning inventory
- **Beginning inventory at the start of Year 2** = 36,000 grams
#### Year 2:
- First Quarter:
- Purchases = \( 234,000 \, \text{grams} - 36,000 \, \text{grams} = 198,000 \, \text{grams} \)
- Second Quarter:
- Beginning inventory = Desired ending inventory from First Quarter = 54,000 grams
- Purchases = \( 360,000 \, \text{grams} - 54,000 \, \text{grams} = 306,000 \, \text{grams} \)
- Third Quarter:
- Beginning inventory = Desired ending inventory from Second Quarter = 90,000 grams
- Purchases = \( 510,000 \, \text{grams} - 90,000 \, \text{grams} = 420,000 \, \text{grams} \)
- Fourth Quarter:
- Beginning inventory = Desired ending inventory from Third Quarter = 60,000 grams
- Purchases = \( 342,000 \, \text{grams} - 60,000 \, \text{grams} = 282,000 \, \text{grams} \)
### Summary of Direct Materials Budget for Musk Oil
| Quarter | Production (bottles) | Production Needs (grams) | Desired Ending Inventory (grams) | Total Required (grams) | Beginning Inventory (grams) | Purchases Needed (grams) |
|--------------|-----------------------|--------------------------|----------------------------------|------------------------|-----------------------------|--------------------------|
| Year 2 Q1 | 60,000 | 180,000 | 54,000 | 234,000 | 36,000 | 198,000 |
| Year 2 Q2 | 90,000 | 270,000 | 90,000 | 360,000 | 54,000 | 306,000 |
| Year 2 Q3 | 150,000 | 450,000 | 60,000 | 510,000 | 90,000 | 420,000 |
| Year 2 Q4 | 100,000 | 300,000 | 42,000 | 342,000 | 60,000 | 282,000 |
| **Total** | | | | **1,726,000** | | **1,206,000** |
This budget details the requirements and purchases of musk oil for each quarter of Year 2.