Question

Exercise 8-16 (Algo) Direct Materials and Direct Labor Budgets [LO8-4, LO8-5]

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

Solution

Zan Corporation
Direct Amaterial Budget
	Quarter
	First	Second	Third	Forth	Year
Required production of Units of finished goods	7000	10000	9000	8000	34000
Units of Raw material neede per unit of finoisged goods	5	5	5	5	5
Units of raw material needed to meet production	35000	50000	45000	40000	170000
Budgeted Ending Inventory (Grams)	12500	11250	10000	6000	6000
Total Units of raw material needed	47500	61250	55000	46000	176000
Beginning Inventory (Grams)	8750	12500	11250	10000	8750
Units of raw material to be purchased	38750	48750	43750	36000	167250
Unit cost of raw material	$                  1.60	$               1.60	$                   1.60	$                   1.60	$                    1.60
Cost of raw material to be purchased	$        62,000.00	$    78,000.00	$         70,000.00	$        57,600.00	$       267,600.00

.

Zan Corporation
Cash disbursement budget
	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
Total Material purchase cost	$        62,000.00	$    78,000.00	$         70,000.00	$        57,600.00	$       267,600.00
Paid in Current Quarter	$        37,200.00	$    46,800.00	$         42,000.00	$        34,560.00	$       160,560.00
Paid for previous quarter	$          5,200.00	$    24,800.00	$         31,200.00	$        28,000.00	$         89,200.00
Total cash disbursenemt	$        42,400.00	$    71,600.00	$         73,200.00	$        62,560.00	$       249,760.00

.

Zan Corporation
Direct labor Budget
	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
Required Production in Units	7000	10000	9000	8000	34000
Direct labor time per unit (Hours)	0.2	0.2	0.2	0.2	0.2
Total direct labor hours needed	1400	2000	1800	1600	6800
Direct labor cost per hout	$                13.50	$            13.50	$                 13.50	$                13.50	$                 13.50
Total direct labor coct	$        18,900.00	$    27,000.00	$         24,300.00	$        21,600.00	$         91,800.00