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	24,000	27,000	26,000	25,000

In addition, 42,000 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 $8,600.

Each unit requires 7 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 $12.50 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

Req 1 and 2 :
	1st quarter	2nd quarter	3rd quarter	4th quarter	year
Units to be produced	24,000	27,000	26,000	25,000	102,000
Quantity of raw materials needed per unit of finished goods	7	7	7	7	7
Quantity of raw materials needed to meet production	168,000	189,000	182,000	175,000	714,000
(+) desired ending inventory of raw materials [ 25% * Following quarter's production needs ]	47,250	45,500	43,750	5,000	5,000
Total units of raw materials needed	215,250	234,500	225,750	180,000	719,000
(-) Beginning inventory of raw materials	42,000	47,250	45,500	43,750	42,000
Estimated grams of raw material to be purchased	173,250	187,250	180,250	136,250	677,000
Cost per gram of raw materials	$               1.80	$             1.80	$               1.80	$          1.80	$                 1.80
Cost of raw materials to purchased	$        311,850	$      337,050	$        324,450	$   245,250	$       1,218,600

Req 3 :
	1st quarter	2nd quarter	3rd quarter	4th quarter	year
Cash disbursement for purchases of :
Current quarter (60%)	$        187,110	$      202,230	$        194,670	$   147,150
Previous quarter (40%)	$             8,600	$      124,740	$        134,820	$   129,780
Total cash disbursement for materials	$        195,710	$      326,970	$        329,490	$   276,930	$       1,129,100

Req 4 :
	1st quarter	2nd quarter	3rd quarter	4th quarter	year
Units to be produced	24,000	27,000	26,000	25,000	102,000
(*) Direct labor hours required per unit	0.40	0.40	0.40	0.40	0.40
Total direct labor hours required	9,600	10,800	10,400	10,000	40,800
(*) Direct labor rate per hour	$             12.50	$           12.50	$            12.50	$        12.50	$               12.50
Total direct labor cost	$        120,000	$      135,000	$        130,000	$   125,000	$          510,000