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	7,000	10,000	9,000	8,000

In addition, 8,750 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 $5,200.

Each unit requires 5 grams of raw material that costs $1.60 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 6,000 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 $13.50 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.

Answer 1

Req 1 & 2
Zan corporation
Direct materials budget
	1st quarter	2nd quarter	3rd quarter	4th quarter	year
Units to be produced	7,000	10,000	9,000	8,000	34,000
Units of raw materials needed per unit of finished goods	5.00	5.00	5.00	5.00	5.00
Units of raw materials needed to meet production	35,000	50,000	45,000	40,000	170,000
(+) desired ending inventory of raw materials [ 25% * Following quarter's production needs ]	12,500	11,250	10,000	6,000	6,000
Total units of raw materials needed	47,500	61,250	55,000	46,000	176,000
(-) Units of Beginning of raw materials inventory	8,750	12,500	11,250	10,000	8,750
Estimated grams of raw materials to be purchased	38,750	48,750	43,750	36,000	167,250
Unit cost of raw materials	$               1.60	$             1.60	$               1.60	$                  1.60	$                 1.60
Cost of raw materials to purchased	$          62,000	$         78,000	$          70,000	$             57,600	$          267,600
Req 3 :
Schedule of expected cash disbursements for materials
	1st quarter	2nd quarter	3rd quarter	4th quarter	year
Beginning accounts payables	$             5,200				$               5,200
1st quarter purchases	$          37,200	$         24,800			$             62,000
2nd quarter purchases		$         46,800	$          31,200		$             78,000
3rd quarter purchases			$          42,000	$             28,000	$             70,000
4th quarter purchases				$             34,560	$             34,560
Total cash disbursements for materials	$          42,400	$         71,600	$          73,200	$             62,560	$          249,760
Req 4 :
Zan corporation
Direct labour budget
	1st quarter	2nd quarter	3rd quarter	4th quarter	year
Units to be produced	7,000	10,000	9,000	8,000	34,000
(*) Direct labor hours required per unit	0.20	0.20	0.20	0.20	0.20
Total direct labor hours required	1,400	2,000	1,800	1,600	6,800
(*) Direct labor rate per hour	$             13.50	$           13.50	$            13.50	$                13.50	$               13.50
Total direct labor cost	$          18,900	$         27,000	$          24,300	$             21,600	$             91,800