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	6,500	9,500	8,500	7,500

In addition, 7,500 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 $4,380.

Each unit requires 9.50 grams of raw material that costs $1.20 per gram. Management desires to end each quarter with an inventory of raw materials equal to 10% of the following quarter’s production needs. The desired ending inventory for the 4th quarter is 9,500 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 labour-hours and direct labourers are paid $8.50 per hour.

Required:
1. Prepare the company’s direct materials purchases budget and schedule of expected cash disbursements for materials for the upcoming fiscal year.

2. Prepare the company’s direct labour budget for the upcoming fiscal year, assuming that the direct labour workforce is adjusted each quarter to match the number of hours required to produce the forecast number of units produced.

Answer 1

Direct Material Purchase Budget- Zan Corporation
	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year
Units To Be Produced (a)	6500	9500	8500	7500	32000
Gram Required per Unit (b)	9.5	9.5	9.5	9.5	9.5
Total Gram Required (c=aXb)	61750	90250	80750	71250	304000
Add : Desired Material Ending inventory (10% of next Qtr Requirement )	9025	8075	7125	9500	9500
Less : Beginning Raw Material Inventory	7500	9025	8075	7125	7500
Raw material need to be Purchased (d)	63275	89300	79800	73625	306000
Cost per Gram (e )	$1.60	$1.60	$1.60	$1.60	$1.60
Cost Of Raw Material Purchases (dXe)	$101,240.00	$142,880.00	$127,680.00	$117,800.00	$489,600.00
Scheudule of Expected Cash Disbursement
	Quarter 1	Quarter 2	Quarter 3	Quarter-4	Year
Accounts Payable	$4,380.00				$4,380.00
Qtr-1 Purchase (60% in same Month and 40% in Following Month	$60,744.00	$40,496.00			$101,240.00
Qtr-2 Purchase (60% in same Month and 40% in Following Month		$85,728.00	$57,152.00		$142,880.00
Qtr-3 Purchase (60% in same Month and 40% in Following Month			$76,608.00	$51,072.00	$127,680.00
Qtr-4 Purchase (60% in same Month and 40% in Following Month				$70,680.00	$70,680.00
Expected Cash disbursements	$65,124.00	$126,224.00	$133,760.00	$121,752.00	$446,860.00
Direct Labor Cost Budget- Zan Corporation
	Quarter 1	Quarter 2	Quarter 3	Quarter 3	Year
Units To Be Produced (a)	6500	9500	8500	7500	32000
Hour Required per Unit (b)	0.2	0.2	0.2	0.2	0.2
Direct Labour Hour Required (c=aXb)	1300	1900	1700	1500	6400
Rate per Hour (d)	8.5	8.5	8.5	8.5	8.5
Estimated Labour Cost (cXd)	$11,050.00	$16,150.00	$14,450.00	$12,750.00	$54,400.00

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