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 15,000 18,000 17,000 16,000 In addition, 30,000 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 $6,800. Each unit requires 8 grams of raw material that costs $1.60 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 6,000 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

Answer 1

Solutions:

Zan Corporation
Direct Materials Budget
	1st	2nd	3rd	4th
	Quarter	Quarter	Quarter	Quarter	Year
Required production in units of finished goods	15000	18000	17000	16000	66000
Units of raw materials needed per unit of finished goods	8	8	8	8	8
Units of raw materials needed to meet production	120000	144000	136000	128000	528000
Add: Desired Ending Raw Material inventory (20% of next Quarter production needs)	36000	34000	32000	6000	6000
Total units of raw materials needed	156000	178000	168000	134000	534000
Less: Beginning Raw Material inventory	30000	36000	34000	32000	30000
Units of raw materials to be purchased	126000	142000	134000	102000	504000
Unit cost of raw materials	$1.60	$1.60	$1.60	$1.60	$1.60
Cost of raw materials to be purchased	$2,01,600	$2,27,200	$2,14,400	$1,63,200	$8,06,400
Zan Corporation
Schedule of Expected Cash Disbursements for Materials
	1st	2nd	3rd	4th
	Quarter	Quarter	Quarter	Quarter	Year
Beginning accounts payable	$6,800				$6,800
1st Quarter purchases	$1,20,960	$80,640			$2,01,600
2nd Quarter purchases		$1,36,320	$90,880		$2,27,200
3rd Quarter purchases			$1,28,640	$85,760	$2,14,400
4th Quarter purchases				$97,920	$97,920
Total cash disbursements for materials	$1,27,760	$2,16,960	$2,19,520	$1,83,680	$7,47,920
Zan Corporation
Direct Labor Budget
	1st	2nd	3rd	4th
	Quarter	Quarter	Quarter	Quarter	Year
Required production in units	15000	18000	17000	16000	66000
Direct labor-hours per unit	0.20	0.20	0.20	0.20	0.20
Total direct labor-hours needed	3000	3600	3400	3200	13200
Direct labor cost per hour	$11.50	$11.50	$11.50	$11.50	$11.50
Total direct labor cost	$34,500	$41,400	$39,100	$36,800	$1,51,800