Question

The production department of Zan Corporation has submitted the following forecast of units to be produced by quarter for the upcoming fiscal year: SHOW ALL WORK

	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter
Units to be produced	10,000	13,000	12,000	11,000

In addition, 20,000 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 $5,800.

Each unit requires 8 grams of raw material that costs $1.40 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 7,000 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 $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. 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

RAW MATERIAL PURCHASE BUDGET
			Q1	Q2	Q3	Q4	YEAR
bBudgeted Production units			10,000	13,000	12,000	11,000	46,000
Raw material required per unit			8	8	8	8	8
Total raw material requirement			80,000	104,000	96,000	88,000	368,000
Add: Desired Ending Inventory			26,000	24,000	22,000	7,000	7,000
Total needs			106,000	128,000	118,000	95,000	375,000
Less: Beginning Inventory			20,000	26,000	24,000	22,000	20,000
Purchase Units			86,000	102,000	94,000	73,000	355,000
Cost price per unit			1.40	1.40	1.40	1.40	1.40
Budgeted Purchase in $			120,400	142,800	131,600	102,200	497,000
EXPECTED CASH PAYMENTS
			Q1	Q2	Q3	Q4	Year
Beginning Accounts payable			5,800				5800
Q1 Purchase			72,240	48160			120400
Q2 Purchase				85680	57120		142800
Q3 Purchase					78960	52,640	131600
Q4 Purchase						61,320	61320
Total Cash disbursement			78,040	133,840	136,080	113,960	461920
LABOUR COST BUDGETS
			QUARTER-1	QUARTER-2	QUARTER-3	QUARTER-4	YEAR
Units to be produced			10,000	13,000	12,000	11,000	46,000
Labour required per unit			0.4	0.4	0.4	0.4	0.4
Labour hours			4000	5200	4800	4400	18400
Labour cost per hour			11.5	11.5	11.5	11.5	11.5
Budgeted Labour cost in $			46000	59800	55200	50600	211600