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	12,000	15,000	14,000	13,000

In addition, 15,000 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 $6,200.

Each unit requires 5 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 $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

RAW MATERIAL PURCHASE BUDGET
			Q1	Q2	Q3	Q4	Total
Budgeted Production units			12,000	15,000	14,000	13,000	54,000
Raw material required per unit			5	5	5	5	5
Total Production needs			60,000	75,000	70,000	65,000	270,000
Add: Desired Ending Inventory			18,750	17,500	16,250	5,000	5,000
Total needs			78,750	92,500	86,250	70,000	275,000
Less: Beginning Inventory			15,000	18,750	17,500	16,250	15,000
Purchase Units			63,750	73,750	68,750	53,750	260,000
Cost price per unit			1.80	1.80	1.80	1.80	1.80
Budgeted Purchase in $			114,750	132,750	123,750	96,750	468,000
EXPECTED CASH PAYMENTS
			Q1	Q2	Q3	Q4	YEAR
Beginning Accounts payable			6,200				6200
Q1 Purchases			68850	45900			114750
Q2 Purchases				79650	53100		132750
Q3 Purchases					74250	49,500	123750
Q4 Purchases						58,050	58050
Total Cash disbursement			75,050	125,550	127,350	107,550	435500
LABOUR COST BUDGETS
			QUARTER-1	QUARTER-2	QUARTER-3	QUARTER-4
Units to be produced			12,000	15,000	14,000	13,000
Labour required per unit			0.4	0.4	0.4	0.4
Labour hours			4800	6000	5600	5200
Labuor Rate per hour			13.5	13.5	13.5	13.5
Budgeted Labour cost in $			64,800	81,000	75,600	70,200