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 5,600 8,600 7,600 6,600 In addition, 6,600 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 $3,480. Each unit requires 8.60 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 8,600 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 labour-hours and direct labourers are paid $10.30 per hour. Required: 1. Prepare the company’s direct materials purchases budget and schedule of expected cash disbursements for materials for the upcoming fiscal year. 2. Prepare the company’s direct labour budget for the upcoming fiscal year, assuming that the direct labour workforce is adjusted each quarter to match the number of hours required to produce the forecast number of units produced.

Answer 1

Direct Materials Budget
			January	February	March	Quarter
Units to be Produced			5,600	8,600	7,600	6,600
(*)Multiply by: Quantity of DM Needed Per Unit (lbs.)			9	9	9	9
Quantity of DM Needed for Production (lbs.)			48,160	73,960	65,360	56,760
(+)Plus: Desired Ending Inventory of DM (lbs.)			18,490	16,340	14,190	0
Total Quantity of DM Needed (lbs.)			66,650	90,300	79,550	56,760
(-)Less: Beginning Inventory of DM (lbs.)			6,600	0	0	0
Quantity of DM to Purchase (lbs.)			60,050	90,300	79,550	56,760
(*)Multiply by: Cost Per Pound			$1.2	$1.2	$1.2	$1.2
Total Cost of DM Purchases			$72,060	$1,08,360	$95,460	$68,112

Cash Payments for Direct Material Purchases Budget
			January	February	March	Quarter
60% of Current Month DM Purchases			$43,236	$65,016	$57,276	$40,867
40% of Previous Month DM Purchases			$0	$28,824	$43,344	$38,184
Total Cash Payments DM Purchases			$43,236	$93,840	$1,00,620	$2,37,696

Cash Payments for Direct Labor Budget
			January	February	March	Quarter
Units Produced			5,600	8,600	7,600	6,600
(*)Multiply by: Hours Per Unit			0.2	0.2	0.2	0.2
Direct Labor Hours			1120	1720	1520	1320
(*)Multiply by: Direct Labor Rate Per Hour			$10.3	$10.3	$10.3	$10.3
Direct Labor Cost			$11,536	$17,716	$15,656	$13,596