Chapter 8, Problem 3E

Direct Materials Budget LOB-4
Three 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 muskoil is $1.50 per gram. Budgeted production of Mink Caress is given below by quarters for Year 2 and for the first quarter of Year 3:

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 thisreason, the inventory of musk oil at the end of a quarter must be equal to 20°o of the following quarter’s production needs. Some 36,000 grams of musk oil willbe on hand to start the first quarter of Year 2.
Required:
Using Schedule 3 as your guide, prepare a direct materials budget for musk oil, by quarter and in total, for Year 2.