Prepare a direct materials budget for musk oil
Managerial Accounting
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 $2.10 per gram. Budget 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
Budget production, in bottles
84,000
114,000
174,000
124,000
94,000
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 quarter’s production needs. Some 33,600 grams of musk oil will be on hand to start the first quarter of Year 2.
