Question

The production department of Zan Corporation has submitted the following forecast of units to be produced by quarter for the upcoming fiscal year: Units to be produced 1st Quarter 10,000 2nd Quarter 13,000 3rd Quarter 12,000 4th Quarter 11,000 In addition, 20,000 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 $5,800. Each unit requires 8 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 $11.50 per hour Required: 1.82. 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. Assume that the direct labor workforce is adjusted each quarter to match the number of hours required to produce the estimated number of units produced.

Answer 1

SOLUTION

1&2 Direct Materials Budget

	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year
Required production in units of finished goods	10,000	13,000	12,000	11,000	46,000
Units of raw materials needed per unit of finished goods	8	8	8	8	8
Units of raw materials needed to meet production	80,000	104,000	96,000	88,000	368,000
Add: Desired Ending Raw Material inventory (25% of next Quarter production needs)	26,000	24,000	22,000	7,000	7,000
Total units of raw materials needed	106,000	128,000	118,000	95,000	375,000
Less: Beginning Raw Material inventory	20,000	26,000	24,000	22,000	20,000
Units of raw materials to be purchased	86,000	102,000	94,000	73,000	355,000
Unit cost of raw materials	$1.40	$1.40	$1.40	$1.40	$1.40
Cost of raw materials to be purchased	120,400	142,800	131,600	102,200	497,000

3. Schedule of Expected Cash Disbursements for Materials

	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year
Beginning accounts payable	5,800				5,800
1st Quarter purchases (120,400*60%), (120,400*40%)	72,240	48,160			120,400
2nd Quarter purchases (142,800*60%), (142,800*40%)		85,680	57,120		142,800
3rd Quarter purchases (131,600*60%), (131,600*40%)			78,960	52,640	131,600
4th Quarter purchases (102,200*60%)				61,320	61,320
Total cash disbursements for materials	78,040	133,840	136,080	113,960	461,920

4. Direct Labor Budget

	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year
Required production in units	10,000	13,000	12,000	11,000	46,000
Direct labor-hours per unit	0.40	0.40	0.40	0.40	0.40
Total direct labor-hours needed	4,000	5,200	4,800	4,400	18,400
Direct labor cost per hour	$11.50	$11.50	$11.50	$11.50	$11.50
Total direct labor cost	46,000	59,800	55,200	50,600	211,600