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