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	8,000	11,000	10,000	9,000

In addition, 12,000 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 $5,400.

Each unit requires 6 grams of raw material that costs $1.80 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 5,000 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

1 & 2)	Particulars				1st Qtr	2nd Qtr	3rd Qtr	4th Qtr	Total
	Units to be produced				8000	11000	10000	9000	38000
	R.M req. per unit				6	6	6	6	6
	Total R.M req. for production				48000	66000	60000	54000	228000
Add:	Desired ending R.M inventory				16500	15000	13500	5000	50000
	Total R.M inventory avialable				64500	81000	73500	59000	278000
Less:	Beginning R.M inventory				12000	16500	15000	13500	57000
	Est. gram of R.M needed to be purchased				52500	64500	58500	45500	221000
	Cost of R.M per gram				$           1.80	$             1.80	$             1.80	$           1.80	$             1.80
	Cost of R.M in total				$ 94,500.00	$ 116,100.00	$ 105,300.00	$ 81,900.00	$ 397,800.00

3)	Particulars				1st Qtr	2nd Qtr	3rd Qtr	4th Qtr	Total
	Cost of R.M in total				$ 94,500.00	$ 116,100.00	$ 105,300.00	$ 81,900.00	$ 397,800.00
	Payment for:
	Accounts Payable				$   5,400.00	$                 -	$                 -	$               -	$     5,400.00
	1st Qtr				$ 56,700.00	$   37,800.00	$                 -	$               -	$   94,500.00
	2nd Qtr				$               -	$   69,660.00	$   46,440.00	$               -	$ 116,100.00
	3rd Qtr				$               -	$                 -	$   63,180.00	$ 32,760.00	$   95,940.00
	4th Qtr				$               -	$                 -	$                 -	$ 49,140.00	$   49,140.00
	Total cash disbursements				$ 62,100.00	$ 107,460.00	$ 109,620.00	$ 81,900.00	$ 361,080.00

4)	Particulars				1st Qtr	2nd Qtr	3rd Qtr	4th Qtr	Total
	Units to be produced				8000	11000	10000	9000	38000
	Direct Labor hours req. per unit				0.4	0.4	0.4	0.4	0.4
	Total Direct Labor hours req				3200	4400	4000	3600	15200
	Direct Labor rate per hour				$        14.50	$           14.50	$           14.50	$        14.50	$           14.50
	Estimated Direct Labor cost				$ 46,400.00	$   63,800.00	$   58,000.00	$ 52,200.00	$ 220,400.00