Exercise 8-3 Direct Materials Budget [LO8-4]
Four grams of musk oil are required for each bottle of MinkCaress, a very popular perfume made by a small company in westernSiberia. The cost of the musk oil is $1.80 per gram. Budgetedproduction of Mink Caress is given below by quarters for Year 2 andfor the first quarter of Year 3:
| Year 2 | | Year 3 | |
| First | Second | Third | Fourth | | First | |
| Budgeted production, in bottles | 94,000 | 124,000 | 184,000 | 134,000 | | 104,000 | |
|
Musk oil has become so popular as a perfume ingredient that ithas become necessary to carry large inventories as a precautionagainst stock-outs. For this reason, the inventory of musk oil atthe end of a quarter must be equal to 20% of the followingquarter’s production needs. Some 75,200 grams of musk oil will beon hand to start the first quarter of Year 2.
Required:
Prepare a direct materials budget for musk oil, by quarter andin total, for Year 2.
