Question

Exercise 8-16 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: 2nd Quarter 8,000 3rd Quarter 7,000 1st Quarter 4th Quarter 6,000 Units to be produced 5,000 In addition, 6,000 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 $2,880 Each unit requires 8 grams of raw material that costs $1.20 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 8,000 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 $11.50 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. 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. Complete this question by entering your answers in the tabs below. Req 1 and 2 Req 3 Req 4 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. 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Year Estimated grams of raw material to be purchased Cost of raw materials to be purchased

Answer 1

1 and 2

Raw Material Budget
	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
Budgeted Production (needs)	5000	8000	7000	6000
Raw Material per unit (grams)	8	8	8	8
Material for Production	40000	64000	56000	48000
Add : Desired Ending Inventory	16000	14000	12000	8000
Material Required	56000	78000	68000	56000
Less : Beginning Inventory	6000	16000	14000	12000
Material to be purchased (grams)	50000	62000	54000	44000	210000
Cost per gram	$              1.20	$              1.20	$              1.20	$              1.20
Purchase cost	$         60,000	$         74,400	$         64,800	$         52,800	$       252,000

Ending Inventory = 25% of next quarter production needs

3.

	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
Cash disbursement for previous quarter	$            2,880	$         24,000	$         29,760	$         25,920
Cash disbursement for current quarter	$         36,000	$         44,640	$         38,880	$         31,680
Total Cash disbursements	$         38,880	$         68,640	$         68,640	$         57,600	$       233,760

	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter
Cash disbursement for previous quarter	2880	=60000*40%	=74400*40%	=64800*40%
Cash disbursement for current quarter	=60000*60%	=74400*60%	=64800*60%	=52800*60%

4.

Direct labor
	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
Budgeted Production (units)	5000	8000	7000	6000
Labor hours per unit	0.2	0.2	0.2	0.2
Labor hours required	1000	1600	1400	1200
Labor cost per unit	$            11.50	$            11.50	$            11.50	$            11.50
Total labor cost	$         11,500	$         18,400	$         16,100	$         13,800	$         59,800