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	13,000	16,000	15,000	14,000

In addition, 19,500 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 $6,400.

Each unit requires 6 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 $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.

Answer 1

1	Zan Corporation
	Estimated Gram of Raw Material Needed
		1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
	Units to be Produced(A)	13000	16000	15000	14000	58000
	Raw Material Per Unit(B)	6.00	6.00	6.00	6.00	6.00
	Total Raw Material Required for Production(A*B)	78000	96000	90000	84000	348000
	Add: Desired Closing Stock of RM	24000	22500	21000	8000	8000	(25% of Following Qtr Need)
	Total Raw Material Needed	102000	118500	111000	92000	356000
	Less: Opening Stock of RM	19500	24000	22500	21000	19500
	Raw Material to be Purchased	82500	94500	88500	71000	336500
2	Zan Corporation
	Cost of Raw Material to be Purchased
		1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
	Raw Material to be Purchased in Units(A)	82500	94500	88500	71000	336500
	Cost Per Unit of RM(B)	1.20	1.20	1.20	1.20	1.20
	Total Cost of Purchases(A*B)	99000	113400	106200	85200	403800
3	Zan Corporation
	Expected Cash Disbursement for Purchases
		1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
	Total Cost of Purchases	99000	113400	106200	85200	403800
	In the Quarter of Purchases(60%)	59400	68040	63720	51120	242280
	In the Following Quarter of Purchases(40%)	6400	39600	45360	42480	133840
	Total Expected Cash Disbursement for Purchases	65800	107640	109080	93600	376120
4	Zan Corporation
	Direct Labor Budget
		1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
	Units to be Produced(A)	13000	16000	15000	14000	58000
	Direct Labor Needed PU(B)	0.20	0.20	0.20	0.20	0.20
	Total Direct Labor Hours NeededC=(A*B)	2600	3200	3000	2800	11600
	Direct Labor Rate PH(D)	14.50	14.50	14.50	14.50	14.50
	Total Direct Labor Cost(C*D)	37700	46400	43500	40600	168200