Question

The production department of Zan Corporation has submitted the following forecast of units to be produced by quarter for the upcoming fiscal year:

1st Quarter2nd Quarter3rd Quarter4th Quarter

Units to be produced24,00027,00026,00025,000

In addition, 42,000 grams of raw materials inventory is on hand at the start of the 1st Quarter and the beginning accounts payable for the 1st Quarter is $8,600.

Each unit requires 7 grams of raw material that costs $1.80 per gram. Management desires to end each quarter with an inventory of raw materials equal to 25% of the following quarter’s production needs. The desired ending inventory for the 4th Quarter is 5,000 grams. Management plans to pay for 60% of raw material purchases in the quarter acquired and 40% in the following quarter. Each unit requires 0.40 direct labor-hours and direct laborers are paid $12.50 per hour.

Required:

1.&2. Calculate the estimated grams of raw material that need to be purchased and the cost of raw material purchases for each quarter and for the year as a whole.

3. Calculate the expected cash disbursements for purchases of materials for each quarter and for the year as a whole.

4. Calculate the estimated direct labor cost for each quarter and for the year as a whole.

Answer 1

Direct Material Purchase Budget- Zan Corporation
	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year
Units To Be Produced (a)	24000	27000	26000	25000	102000
Gram Required per Unit (b)	7	7	7	7	7
Tototal Gram Required (c=aXb)	168000	189000	182000	175000	714000
Add : Desired Material Ending inventory (25% of next Qtr Requirement )	47250	45500	43750	5000	5000
Less : Beginning Raw Material Inventory	42000	47250	45500	43750	42000
Raw material need to be Purchased (d)	173250	187250	180250	136250	677000
Cost per Gram (e )	$1.80	$1.80	$1.80	$1.80	$1.80
Cost Of Raw Material Purchases (dXe)	$311,850.00	$337,050.00	$324,450.00	$245,250.00	$1,218,600.00
Scheudule of Expected Cash Disbursement
	Quarter 1	Quarter 2	Quarter 3	Quarter-4	Year
Accounts Payable	$8,600.00				$8,600.00
Qtr-1 Purchase (60% in same Month and 40% in Following Month	$187,110.00	$124,740.00			$311,850.00
Qtr-2 Purchase (60% in same Month and 40% in Following Month		$202,230.00	$134,820.00		$337,050.00
Qtr-3 Purchase (60% in same Month and 40% in Following Month			$194,670.00	$129,780.00	$324,450.00
Qtr-4 Purchase (60% in same Month and 40% in Following Month				$147,150.00	$147,150.00
Expected Cash disbursements	$195,710.00	$326,970.00	$329,490.00	$276,930.00	$1,129,100.00
Direct Labor Cost Budget- Zan Corporation
	Quarter 1	Quarter 2	Quarter 3	Quarter 3	Year
Units To Be Produced (a)	24000	27000	26000	25000	102000
Hour Required per Unit (b)	0.4	0.4	0.4	0.4	0.4
Direct Labour Hour Required (c=aXb)	9600	10800	10400	10000	40800
Rate per Hour (d)	12.5	12.5	12.5	12.5	12.5
Estimated Labour Cost (cXd)	$120,000.00	$135,000.00	$130,000.00	$125,000.00	$510,000.00