Question

In: Accounting

The production department of Zan Corporation has submitted the following forecast of units to be produced...

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 8,000 11,000 10,000 9,000

In addition, 12,000 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 $5,400.

Each unit requires 6 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 $14.50 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.

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

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

Solutions

Expert Solution

1&2.

1st quarter 2nd quarter 3rd quarter 4th quarter Year
Units to be produced 8,000 11,000 10,000 9,000 38,000
Raw material per unit (grams) 6 6 6 6 6
Raw material to be used in production 48,000 66,000 60,000 54,000 228,000
Desired ending raw materials 16,500 (66,000*25%) 15,000 (60,000*25%) 13,500 (54,000*25%) 5,000 5,000
Beginning raw materials inventory (12,000) (16,500) (15,000) (13,500) (12,000)
Estimated grams of raw material to be purchased 52,500 64,500 58,500 45,500 221,000
Cost per gram 1.8 1.8 1.8 1.8 1.8
Cost of raw materials to be purchased 94,500 116,100 105,300 81,900 397,800

3.

1st quarter 2nd quarter 3rd quarter 4th quarter year
Cost of raw materials to be purchased 94,500 116,100 105,300 81,900 397,800
Paid in the quarter acquired 56,700 (94,500*60%) 69,660 (116,100*60%) 63,180 (105,300*60%) 49,140 (81,900*60%) 238,680
Paid in the following quarter 5,400 37,800 (94,500*40%) 46,440 (116,100*40%) 42,120 (105,300*40%) 131,760
Total cash disbursements for materials 62,100 107,460 109,620 91,260 370,440

4.

1st quarter 2nd quarter 3rd quarter 4th quarter Year
Units to be produced 8,000 11,000 10,000 9,000 38,000
Direct labour hours per unit 0.4 0.4 0.4 0.4 0.4
Total direct labour hours 3,200 4,400 4,000 3,600 15,200
Direct labour rate per hour 14.5 14.5 14.5 14.5 14.5
Total direct labour cost 46,400 63,800 58,000 52,200 220,400

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