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 S 11.50 per hour. 

Required:

Prepare the company's direct materials purchases budget and schedule of expected cash disbursements for materials for the upcoming fiscal year. 

Answer 1

 

Direct Materials Budget:

	1st  Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
Required production in units of finished goods	5,000	8,000	7,000	6,000	26,000
Units of raw materials needed per unit of finished goods	× 8	× 8	× 8	× 8	× 8
Units of raw materials needed to meet production	$40,000	64,000	56,000	48,000	208,000
Add desired units of ending raw materials inventory	16,000	14,000	12,000	8,000	8,000
Total units of raw materials needed	56,000	78,000	68,000	56,000	216,000
Less units of beginning raw materials inventory	$6,000	16,000	14,000	12,000	6,000
Units of raw materials to be purchased	50,000	62,000	54,000	44,000	210,000
Unit cost of raw materials	× $1.20	× $1.20	× $1.20	× $1.20	× $1.20
Cost of raw materials to be purchased	60,000	$74,400	$64,800	$52,800	$252,000

 

Schedule of Expected Cash Disbursements for Materials:

 

	1st Quarter	2nd  Quarter	3rd Quarter	4th Quarter	Year
Beginning accounts payable	$2,880				$2,880
1st Quarter purchases	36,000	$24,000			60,000
2nd Quarter purchases		44,640	$29,760		74,400
3rd Quarter purchases			38,880	$25,920	64,800
4th Quarter purchases				31,680	31,680
Total cash disbursements for materials	$38,880	$68,640	$68,640	$57,600	$233,760

 

 

 

	1st  Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
Cost of raw materials to be purchased	60,000	$74,400	$64,800	$52,800	$252,000

 

 

	1st Quarter	2nd  Quarter	3rd Quarter	4th Quarter	Year
Total cash disbursements for materials	$38,880	$68,640	$68,640	$57,600	$233,760