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

Requirement 1

Zan Corporation
Direct Amaterial Budget
	Quarter
	First	Second	Third	Forth	Year
Required production of Units of finished goods	18000	21000	20000	19000	78000
Units of Raw material neede per unit of finoisged goods	6	6	6	6	6
Units of raw material needed to meet production	108000	126000	120000	114000	468000
Budgeted Ending Inventory (Grams)	31500	30000	28500	7000	7000
Total Units of raw material needed	139500	156000	148500	121000	475000
Beginning Inventory (Grams)	27000	31500	30000	28500	27000
Units of raw material to be purchased	112500	124500	118500	92500	448000
Unit cost of raw material	$                1.40	$               1.40	$                   1.40	$                1.40	$                    1.40
Cost of raw material to be purchased	$   157,500.00	$ 174,300.00	$      165,900.00	$   129,500.00	$       627,200.00

.

Requirement 2

Zan Corporation
Cash disbursement budget
	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
Total Material purchase cost	$   157,500.00	$ 174,300.00	$      165,900.00	$   129,500.00	$       627,200.00
Paid in Current Quarter	$     94,500.00	$ 104,580.00	$         99,540.00	$     77,700.00	$       376,320.00
Paid for previous quarter	$        7,400.00	$    63,000.00	$         69,720.00	$     66,360.00	$       206,480.00
Total cash disbursement	$   101,900.00	$ 167,580.00	$      169,260.00	$   144,060.00	$       582,800.00

Requirement 3

Direct labor Budget
	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
Required Production in Units	18000	21000	20000	19000	78000
Direct labor time per unit (Hours)	0.4	0.4	0.4	0.4	0.4
Total direct labor hours needed	7200	8400	8000	7600	31200
Direct labor cost per hour	$              14.50	$            14.50	$                 14.50	$              14.50	$                 14.50
Total direct labor cost	$   104,400.00	$ 121,800.00	$      116,000.00	$   110,200.00	$       452,400.00