Question

11. 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	22,000	25,000	24,000	23,000

In addition, 27,500 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 $8,200.

Each unit requires 5 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 $13.50 per hour.

Required:

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

Solutions:

Zan Corporation
Direct Materials Budget
	1st	2nd	3rd	4th
	Quarter	Quarter	Quarter	Quarter	Year
Required production in units of finished goods	22000	25000	24000	23000	94000
Units of raw materials needed per unit of finished goods	5	5	5	5	5
Units of raw materials needed to meet production	110000	125000	120000	115000	470000
Add: Desired Ending Raw Material inventory (25% of next Quarter production needs)	31250	30000	28750	7000	7000
Total units of raw materials needed	141250	155000	148750	122000	477000
Less: Beginning Raw Material inventory	27500	31250	30000	28750	27500
Units of raw materials to be purchased	113750	123750	118750	93250	449500
Unit cost of raw materials	$1.40	$1.40	$1.40	$1.40	$1.40
Cost of raw materials to be purchased	$1,59,250	$1,73,250	$1,66,250	$1,30,550	$6,29,300
Zan Corporation
Schedule of Expected Cash Disbursements for Materials
	1st	2nd	3rd	4th
	Quarter	Quarter	Quarter	Quarter	Year
Beginning accounts payable	$8,200				$8,200
1st Quarter purchases	$95,550	$63,700			$1,59,250
2nd Quarter purchases		$1,03,950	$69,300		$1,73,250
3rd Quarter purchases			$99,750	$66,500	$1,66,250
4th Quarter purchases				$78,330	$78,330
Total cash disbursements for materials	$1,03,750	$1,67,650	$1,69,050	$1,44,830	$5,85,280
Zan Corporation
Direct Labor Budget
	1st	2nd	3rd	4th
	Quarter	Quarter	Quarter	Quarter	Year
Required production in units	22000	25000	24000	23000	94000
Direct labor-hours per unit	0.40	0.40	0.40	0.40	0.40
Total direct labor-hours needed	8800	10000	9600	9200	37600
Direct labor cost per hour	$13.50	$13.50	$13.50	$13.50	$13.50
Total direct labor cost	$1,18,800	$1,35,000	$1,29,600	$1,24,200	$5,07,600