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

Requirement 1 and 2
Estimated grams of raw material to be purchased and Cost of raw materials to be purchased
	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year
Units to be produced	13000	16000	15000	14000
Raw materials need per unit (gram)	6	6	6	6
Total Raw materials needed for budgeted production units	78000	96000	90000	84000
Plus: Estimated Ending Inventory of Raw materials (25% of production needs of following quarter)	24000	22500	21000	8000
Less: Beginning Inventory of Raw Materials (Ending inventory of last quarter)	19500	24000	22500	21000
Estimated grams of raw materials to be purchased (Requirement 1)	82500	94500	88500	71000
Cost of raw material per gram	$1.20	$1.20	$1.20	$1.20
Cost of raw materials to be purchased (requirement 2)	$99,000	$113,400	$106,200	$85,200	$403,800

Estimated grams of raw material to be purchased and Cost of raw materials to be purchased
	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year
Estimated grams of raw materials to be purchased (Requirement 1)	82500	94500	88500	71000	336500
Cost of raw materials to be purchased (requirement 2)	$99,000	$113,400	$106,200	$85,200	$403,800

Requirement 3 – Total Cash Disbursement for materials
Expected Cash disbursement for purchases of materials
	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year
Cost of raw materials to be purchased	$99,000	$113,400	$106,200	$85,200
Cash Disbursement for Raw materials:
60% in Current Qtr and 40% following quarter of purchase
Quarter-1 Purchase	$59,400	$39,600
Quarter-2 Purchase		$68,040	$45,360
Quarter 3 Purchase			$63,720	$42,480
Quarter-4 Purchase				$51,120
Beginning Account payable	6400
Total Cash Disbursement	$65,800	$107,640	$109,080	$93,600	$376,120

Requirement 4 --- Direct Labor Cost
Estimated Direct Labor Cost
	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year
Units to be produced	13000	16000	15000	14000
Direct labor hours needed per unit	0.2	0.2	0.2	0.2
Total Direct labor hours required for production	2600	3200	3000	2800
Direct labor Cost per hour	$14.50	$14.50	$14.50	$14.50
Total Direct labor cost	$37,700	$46,400	$43,500	$40,600	$168,200