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.

Answer 1

1 and 2)	Particulars	Q1	Q2	Q3	Q4	Year
	Units to be produced	17000	20000	19000	18000	74000
*	R.M required per unit	5	5	5	5	5
	Total production need	85000	100000	95000	90000	370000
Add:	Desired ending R.M inventory	25000	23750	22500	8000	8000
Less:	Beginning R.M inventory	21250	25000	23750	22500	21250
	R.M purchase required	88750	98750	93750	75500	356750
*	Cost of R.M per gram	1.20	1.20	1.20	1.20	1.20
	Cost of R.M to be purchased	106500	118500	112500	90600	428100

* 21,250 grams of raw materials inventory is on hand at the start of the 1st Quarter

* Each unit requires 5 grams of raw material that costs $1.20 per gram

* desired ending inventory = 25% of the following quarter’s production needs

* The desired ending inventory for the 4th Quarter is 8,000 grams.

3.

Particulars	Q1	Q2	Q3	Q4	Year
Cost of R.M to be purchased	106500	118500	112500	90600	428100
Payment made for the month of:
Last year's Q4	7200				7200
Q1	63900	42600			106500
Q2		71100	47400		118500
Q3			67500	45000	112500
Q4				54360	54360
Cash disbursement for R.M	71100	113700	114900	99360	399060

* 60% of raw material purchases in the quarter acquired and 40% in the following quarter.

4.

Particulars	Q1	Q2	Q3	Q4	Year
Units to be produced	17000	20000	19000	18000	74000
Labor hour req. per unit	0.2	0.2	0.2	0.2	0.2
Total Labor hours req	3400	4000	3800	3600	14800
Labor rate per hour	13.50	13.50	13.50	13.50	13.50
Labor cost	45900	54000	51300	48600	199800

*Each unit requires 0.20 direct labor-hours and direct laborers are paid $13.50 per hour.