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	18,000	21,000	20,000	19,000

In addition, 27,000 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 $7,400.

Each unit requires 6 grams of raw material that costs $1.40 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 7,000 grams. Management plans to pay for 60% of raw material purchases in the quarter acquired and 40% in the following quarter. Each unit requires 0.40 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.

Answer 1

Required schedules are as prepared below:

1&2
Zan Corporation
Direct Materials Budget
		1st	2nd	3rd	4th
		Quarter	Quarter	Quarter	Quarter	Year
Required production in units of finished goods	a	18,000	21,000	20,000	19,000	78,000
Units of raw materials needed per unit of finished goods	b	6	6	6	6	6
Units of raw materials needed to meet production	c= a*b	108,000	126,000	120,000	114,000	468,000
Add: Desired units of ending raw materials inventory	d	31,500	30,000	28,500	7,000	7,000
Total units of raw materials needed	e= c+d	139,500	156,000	148,500	121,000	475,000
Less: Units of beginning raw materials inventory	f	27,000	31,500	30,000	28,500	27,000
Units of raw materials to be purchased	g= e-f	112,500	124,500	118,500	92,500	448,000
Unit cost of raw materials	h	1.4	1.4	1.4	1.4	1.4
Cost of raw materials to be purchased	I= g*h	157,500	174,300	165,900	129,500	627,200
3
Zan Corporation
Schedule of Expected Cash Disbursements for Materials
		1st	2nd	3rd	4th
		Quarter	Quarter	Quarter	Quarter	Year
Beginning accounts payable	given in question	7,400				7,400
1st Quarter purchases	60% and 40%	94,500	63,000			157,500
2nd Quarter purchases	60% and 40%		104,580	69,720		174,300
3rd Quarter purchases	60% and 40%			99,540	66,360	165,900
4th Quarter purchases	60%				77,700	77,700
Total cash disbursements for materials		101,900	167,580	169,260	144,060	582,800
4
Zan Corporation
Direct Labor Budget
		1st	2nd	3rd	4th
		Quarter	Quarter	Quarter	Quarter	Year
Required production in units	a	18,000	21,000	20,000	19,000	78,000
Direct labor-hours per unit	b	0.40	0.40	0.40	0.40	0.40
Total direct labor-hours needed	c= a*b	7,200	8,400	8,000	7,600	31,200
Direct labor cost per hour	d	14.50	14.50	14.50	14.50	14.50
Total direct labor cost	e= c*d	104,400	121,800	116,000	110,200	452,400