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	25,000	28,000	27,000	26,000

In addition, 50,000 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 $8,800.

Each unit requires 8 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 $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.

Answer 1

1)	Schedule of R.M purchase
	Particulars			Q1	Q2	Q3	Q4	Total
	Units to be produced			25000	28000	27000	26000	106000
	R.M req. per unit			8	8	8	8	8
	Total grams of R.M req			200000	224000	216000	208000	848000
Add:	Desired ending R.M inventory			56000	54000	52000	8000	170000
Less:	Beginning R.M inventory			50000	56000	54000	52000	212000
	R.M purchase required			206000	222000	214000	164000	806000

2)	Cost of R.M to be purchased
	Particulars			Q1	Q2	Q3	Q4	Total
	R.M purchase required			206000	222000	214000	164000	806000
	R.M cost per gram			$             1.20	$             1.20	$             1.20	$             1.20	$             1.20
	Total Cost to R.M to be purchased			$ 247,200.00	$ 266,400.00	$ 256,800.00	$ 196,800.00	$ 967,200.00

3)	Schedule of Expected Cash Disbursements
	Particulars			Q1	Q2	Q3	Q4	Total
	Payment made for:
	Accounts Payable			$     8,800.00	$                 -	$                 -	$                 -	$     8,800.00
	Q1			$ 148,320.00	$   98,880.00	$                 -	$                 -	$ 247,200.00
	Q2			$                 -	$ 159,840.00	$ 106,560.00	$                 -	$ 266,400.00
	Q3			$                 -	$                 -	$ 154,080.00	$ 102,720.00	$ 256,800.00
	Q4			$                 -	$                 -	$                 -	$ 118,080.00	$ 118,080.00
	Total			$ 157,120.00	$ 258,720.00	$ 260,640.00	$ 220,800.00	$ 897,280.00

4)	Schedule of Direct Labor Cost
	Particulars			Q1	Q2	Q3	Q4	Total
	Units to be produced			25000	28000	27000	26000	106000
	Direct Labor Hours req. per unit			0.2	0.2	0.2	0.2	0.2
	Total Direct Labor Hours req.			5000	5600	5400	5200	21200
	Direct Labor cost per hour			$           11.50	$           11.50	$           11.50	$           11.50	$           11.50
	Total Direct Labor Cost			$   57,500.00	$   64,400.00	$   62,100.00	$   59,800.00	$ 243,800.00