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 Quarter2nd Quarter3rd Quarter4th QuarterUnits to be produced10,000 13,000 12,000 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.&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.

Answer 1

Part 1 & 2 –

Budgeted Cost of Merchandise Purchased for each quarter
	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year
Units to be produced	10000	13000	12000	11000
Required Raw Material per unit (in grams)	8	8	8	8
Total Needs	80000	104000	96000	88000
Plus: Desired Ending Inventory (25% of following quarter's production needs)	26000	24000	22000	7000
Total Needs	106000	128000	118000	95000
Less: Beginning Inventory (last quarter ending inventory)	20000	26000	24000	22000
Budgeted Purchases Units	86000	102000	94000	73000	355000
Unit Purchase Cost	$1.4	$1.4	$1.4	$1.4
Budgeted cost of merchandise purchased	$120,400	$142,800	$131,600	$102,200	$497,000

Part 3 – Expected Cash Disbursements for purchases of materials

	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year
Beginning Accounts Payable	$5,800
Quarter 1 Purchases	$72,240 (120,400*60%)	$48,160 (120,400*40%)
Quarter 2 Purchases		85680 (142800*60%)	57120 (142800*40%)
Quarter 3 Purchases			78960 (131600*60%)	$52,640 (131600*40%)
Quarter 4 Purchases				$61,320 (102,200*60%)
Total Cash Disbursements	$78,040	$133,840	$136,080	$113,960	$461,920

Part 4 – Estimated Direct labor cost for each quarter

	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year
Budgeted Units to be produced	10000	13000	12000	11000
Required Direct Labor Hours per unit	0.40	0.40	0.40	0.40
Total required direct labor hours	4000	5200	4800	4400	$18,400
Direct Labor Rate per hour	$11.50	$11.50	$11.50	$11.50
Budgeted Cost of Direct Labor	$46,000	$59,800	$55,200	$50,600	$211,600

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