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	17,000	20,000	19,000	18,000

In addition, 21,250 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 $7,200.

Each unit requires 5 grams of raw material that costs $1.20 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 8,000 grams. Management plans to pay for 60% of raw material purchases in the quarter acquired and 40% in the following quarter. Each unit requires 0.20 direct labor-hours and direct laborers are paid $13.50 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

1. & 2.	Zan Corporation
	Direct Materials Budget
		1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
	Units to be produced	17000	20000	19000	18000	74000
	Raw material required per unit of production (grams)	5	5	5	5	5
	Raw material needed for production	85000	100000	95000	90000	370000
	Ending inventory @ 25% of following quarter's production needs	25000	23750	22500	8000	8000
	Total raw materials requirement (grams)	110000	123750	117500	98000	378000
	Less: Beginning inventory	21250	25000	23750	22500	21250
	Raw materials to be purchased (grams)	88750	98750	93750	75500	356750
	Unit cost of raw materials	$           1.20	$            1.20	$           1.20	$           1.20	$               1.20
	Budgeted raw material purchases $	106500	118500	112500	90600	428100
3	Zan Corporation
	Schedule of Expected Cash Disbursements for Purchases of Materials
		1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
	Disbursements for:
	Accounts payable	7200				7200
	1st Quarter purchases	63900	42600			106500
	2nd Quarter purchases		71100	47400		118500
	3rd Quarter purchases			67500	45000	112500
	4th Quarter purchases				54360	54360
	Total cash disbursements $	71100	113700	114900	99360	399060
4	Zan Corporation
	Direct Labor Budget
		1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
	Budgeted production (units)	17000	20000	19000	18000	74000
	Direct labor hours required per unit	0.20	0.20	0.20	0.20	0.20
	Total labor hours needed	3400	4000	3800	3600	14800
	Direct labor rate per hour	$        13.50	$          13.50	$         13.50	$         13.50	$             13.50
	Budgeted direct labor cost $	45900	54000	51300	48600	199800