The production department of Zan Corporation has submitted the following forecas

Question

The production department of Zan Corporation has submitted the following forecast of units to be produced by quarter for the upcoming fiscal year: SHOW ALL WORK

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

Explanation / Answer

RAW MATERIAL PURCHASE BUDGET Q1 Q2 Q3 Q4 YEAR bBudgeted Production units 10,000 13,000 12,000 11,000 46,000 Raw material required per unit 8 8 8 8 8 Total raw material requirement 80,000 104,000 96,000 88,000 368,000 Add: Desired Ending Inventory 26,000 24,000 22,000 7,000 7,000 Total needs 106,000 128,000 118,000 95,000 375,000 Less: Beginning Inventory 20,000 26,000 24,000 22,000 20,000 Purchase Units 86,000 102,000 94,000 73,000 355,000 Cost price per unit 1.40 1.40 1.40 1.40 1.40 Budgeted Purchase in $ 120,400 142,800 131,600 102,200 497,000 EXPECTED CASH PAYMENTS Q1 Q2 Q3 Q4 Year Beginning Accounts payable 5,800 5800 Q1 Purchase 72,240 48160 120400 Q2 Purchase 85680 57120 142800 Q3 Purchase 78960 52,640 131600 Q4 Purchase 61,320 61320 Total Cash disbursement 78,040 133,840 136,080 113,960 461920 LABOUR COST BUDGETS QUARTER-1 QUARTER-2 QUARTER-3 QUARTER-4 YEAR Units to be produced 10,000 13,000 12,000 11,000 46,000 Labour required per unit 0.4 0.4 0.4 0.4 0.4 Labour hours 4000 5200 4800 4400 18400 Labour cost per hour 11.5 11.5 11.5 11.5 11.5 Budgeted Labour cost in $ 46000 59800 55200 50600 211600

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