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	5,000	8,000	7,000	6,000

In addition, 6,000 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 $2,880.

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.

• Req 1 and 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.

	1st 2nd 3rd 4th     Quarter Quarter Quarter Quarter Year Estimated grams of raw material to be purchased           Cost of raw materials to be purchased

• Req 3

Calculate the expected cash disbursements for purchases of materials for each quarter and for the year as a whole.

	1st 2nd 3rd 4th     Quarter Quarter Quarter Quarter Year Total cash disbursements for materials

• Req 4

Calculate the estimated direct labor cost for each quarter and for the year as a whole.

	1st 2nd 3rd 4th     Quarter Quarter Quarter Quarter Year Total direct labor cost

Answer 1

1&2.

particulars	Q1	Q2	Q3	Q4	total for year
estimated production in units(a)	5000	8000	7000	6000	26000
rawmaterial needed per unit in grams(b)	8	8	8	8	8
total needs of rawmaterrial in grams(c=a*b)	40000	64000	56000	48000	208000
add:desired closing stock	16000	14000	12000	8000	50000
less:opening stock of rawmaterial	6000	16000	14000	12000	48000
rawmaterial required to purchase in each quarter(d)	50000	62000	54000	44000	210000
cost per rawmaterial($)( e )	1.2	1.2	1.2	1.2	1.2
total cost of purchase(f=d*e)(in $)	60000	74400	64800	52800	252000

3.

particulars	Q1	Q2	Q3	Q4	total for year
total cost of purchase($)	60000	74400	64800	52800	252000
payment:-
payment of opening balance of accounts payables	2880				2880
60% of purchase in the same quarter	36000	44640	38880	31680	151200
40% in the following quarter		24000	29760	25920	79680
total payments	38880	68640	68640	57600	233760

4.

particulars	Q1	Q2	Q3	Q4	total for year
estimated production in units(a)	5000	8000	7000	6000	26000
labour hours needs per unit(b)	0.2	0.2	0.2	0.2	0.2
total labour hours needed(c=a*b)	1000	1600	1400	1200	5200
labour cost per hour($)( d )	11.5	11.5	11.5	11.5	11.5
total labour cost(e=c*d)	11500	18400	16100	13800	59800