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	21,000	24,000	23,000	22,000

In addition, 21,000 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 $8,000.

Each unit requires 4 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 $12.50 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.) AND 2.) ESTIMATED GRAMS OF RAW - MATERIAL NEED TO BE PURCHASED AND COST OF RAW MATERIAL PURCHASED FOR EACH QUARTER

S.NO.	PARTICULARS	QUARTER-1	QUARTER-2	QUARTER-3	QUARTER-4
1.	REQUIREMENT OF RAW MATERIAL	84000GMS (21000 UNITS*4 GM)	96000 GMS (24000 UNITS*4GMS)	92000 GMS (23000 UNITS*4GMS)	88000 GMS (22000 UNITS*4GMS))
2.	CLOSING STOCK (25% OF REQUIREMENT OF RAW MATERIAL FOR NEXT QUARTER)	24000 GMS (96000 GMS*25%)	23000 GMS (92000 GMS*25%)	22000 GMS (88000 GMS*25%)	8000 GMS (GIVEN)
3.	OPEINING STOCK	21000 GMS	24000 GMS	23000 GMS	22000 GMS
4.	PURCHASES (1+2-3)	87000 GMS	95000 GMS	92000 GMS	88000 GMS
5.	COST OF PURCHSES($1.20 PER GM*4.)	$104400	$114000	$109200	$88800

COST OF RAW MATERIAL PURCHASED FOR THE YEAR AS A WHOLE = $416400

3.) EXPECTED CASH DISBURSEMENT FOR PURCHASE OF MATERIAL FOR EACH QUARTER

(IN $)

PARTICULARS	QUARTER-1	QUARTER-2	QUARTER-3	QUARTER-4
OPENING BALANCE	8000	70640	180800	291920
PAYMENT IN QUARTER OF ACQUIRED	62640	68400	65520	53280
PAYMENT OF FOLLOWING QUARTER	0	41760	45600	43680
CLOSING BALANCE	70640	180800	291920	388880

EXPECTED CASH DISBURSEMENT FOR PURCHASE OF MATERIAL FOR THE YEAR AS A WHOLE= $388880

4.) ESTIATED DIRECT LABOUR COST FOR EACH QUARTER

PARTICULARS	QUARTER-1	QUARTER-2	QUARTER-3	QUARTER-4
A) LABOUR HOURS REQUIRED	4200 HOURS (21000 UNITS*0.2 HOURS)	4800 HOURS (24000 UNITS*0.2 HOURS)	4600 HOURS (23000 UNITS*0.2 HOURS)	4400 HOURS (22000 UNITS*0.2 HOURS)
B) COST ($12.50 PER HOUR*A))	$52500	$60000	$57500	$55000

ESTIATED DIRECT LABOUR COST FOR THE YEAR AS A WHOLE = $225000