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	5,300	8,300	7,300	6,300

In addition, 6,300 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 $3,180.

Each unit requires 8.30 grams of raw material that costs $1.20 per gram. Management desires to end each quarter with an inventory of raw materials equal to 40% of the following quarter’s production needs. The desired ending inventory for the 4th quarter is 8,300 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 labour-hours and direct labourers are paid $10.90 per hour.

Required:
1. Prepare the company’s direct materials purchases budget and schedule of expected cash disbursements for materials for the upcoming fiscal year.

2. Prepare the company’s direct labour budget for the upcoming fiscal year, assuming that the direct labour workforce is adjusted each quarter to match the number of hours required to produce the forecast number of units produced.

Answer 1

Solution 1:

Direct Materials Budget - Zan Corporation
Particulars	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year
Required production is units of finished goods	5300	8300	7300	6300	27200
Units of raw material needed per unit of finished goods	8.30	8.30	8.30	8.30	8.30
Units of raw materials needed to meet production	43990	68890	60590	52290	225760
Add: Budgeted ending inventory (40% of next quarter material requirements)	27556	24236	20916	8300	8300
Total units of raw materials needed	71546	93126	81506	60590	234060
Less: Beginning inventory	6300	27556	24236	20916	6300
Estimated grams of raw materials to be purchased	65246	65570	57270	39674	227760
Unit cost of raw materials	$1.20	$1.20	$1.20	$1.20	$1.20
Cost of raw materials to be purchased	$78,295	$78,684	$68,724	$47,609	$273,312

Schedule of expected cash disbursements - Zan Corporation
Particulars	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year
Beginning Accounts payable	$3,180				$3,180
1st quarter purchases	$46,977	$31,318			$78,295
2nd quarter purchases		$47,210	$31,474		$78,684
3rd quarter purchases			$41,234	$27,490	$68,724
4th quarter purchases				$28,565	$28,565
Total cash disbursements for materials	$50,157	$78,528	$72,708	$56,055	$257,448

Solution 2:

Direct Labor Budget - Zan Corporation
Particulars	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year
Budgeted Production Units	5300	8300	7300	6300	27200
Direct labor hours per unit	0.2	0.2	0.2	0.2	0.2
Direct labor hour required	1060	1660	1460	1260	5440
Rate per direct labor hours	$10.90	$10.90	$10.90	$10.90	$10.90
Budgeted direct labor cost	$11,554.00	$18,094.00	$15,914.00	$13,734.00	$59,296.00