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 Quarter 2nd Quarter 3rd Quarter 4th Quarter Units to be produced 10,000 13,000 12,000 11,000 In addition, 20,000 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 $5,800. Each unit requires 8 grams of raw material that costs $1.40 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 7,000 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 $11.50 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. Assume that the direct labor workforce is adjusted each quarter to match the number of hours required to produce the estimated number of units produced.

Answer 1

Rawmaterial Budget and Cash Disbursement
	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Total
Units to be produced	10000	13000	12000	11000	46000
grams/unit	8	8	8	8
Rawmaterial Quantity Required 8gm	80000	104000	96000	88000	368000
Ending Inventory Rawmaterial 25% of next quarter production needs	26000	24000	22000	7000
Total Rawmaterial Required	106000	128000	118000	95000	447000
Less Beginning Inventory	20000	26000	24000	22000
Rawmaterial Inventory needed (grams)	86000	102000	94000	73000	355000
Raw material Cost/gram	$               1.4	$               1.4	$              1.4	$              1.4
Total Rawmaterial Cost Purchase	$     120,400	$     142,800	$    131,600	$    102,200	497000
Expected Cash Disbursement
60% in same quarter	$        72,240	$        85,680	$       78,960	$       61,320	298200
40% in following quarter	$          5,800	$        48,160	$       57,120	$       52,640	163720
Total Cash Disbursement	$        78,040	$     133,840	$    136,080	$    113,960	461920
	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Total
Units to be produced	10000	13000	12000	11000	46000
Direct Labour/Unit	0.4	0.4	0.4	0.4
Total Direct Labour Hours	4000	5200	4800	4400
Direct Labour cost/hour	$            11.5	$            11.5	$           11.5	$           11.5
Direct Labour Cost	$        46,000	$        59,800	$       55,200	$       50,600	$ 211,600