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.

Quarter	Finished goods Production (Units)	Raw Material Req. for production	Opening Inventory	Desired Closing inventory	Raw material to be purchased	Purchase Price of Raw Material	Cost of raw material purchases
1	13,000	78,000	19,500	24,000	82,500	1.20	99,000
2	16,000	96,000	24,000	22,500	94,500	1.20	1,13,400
3	15,000	90,000	22,500	21,000	88,500	1.20	1,06,200
4	14,000	84,000	21,000	8,000	71,000	1.20	85,200
							4,03,800

2.

Quarter	Cost of raw material purchases	60% of Current Month Payment	40% of Previous month Payment	Total Cash Payment for Purchases
1	99,000	59,400	6,400	65,800
2	1,13,400	68,040	59,400	1,27,440
3	1,06,200	63,720	68,040	1,31,760
4	85,200	51,120	63,720	1,14,840

3.

Quarter	Production (Units)	Estimated Direct Labour Hr required @ 0.2/unit	Estimated Direct Labour Cost @ 14.50/unit
1	13,000	2,600	37,700
2	16,000	3,200	46,400
3	15,000	3,000	43,500
4	14,000	2,800	40,600