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:

In addition, 19,500 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 $6,400.

Each unit requires 6 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 $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. 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

1 Zan Corporation Estimated Gram of Raw Material Needed 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year Units to be Produced(A) 13000 16000 15000 14000 58000 Raw Material Per Unit(B) 6.00 6.00 6.00 6.00 6.00 Total Raw Material Required for Production(A*B) 78000 96000 90000 84000 348000 Add: Desired Closing Stock of RM 24000 22500 21000 8000 8000 (25% of Following Qtr Need) Total Raw Material Needed 102000 118500 111000 92000 356000 Less: Opening Stock of RM 19500 24000 22500 21000 19500 Raw Material to be Purchased 82500 94500 88500 71000 336500 2 Zan Corporation Cost of Raw Material to be Purchased 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year Raw Material to be Purchased in Units(A) 82500 94500 88500 71000 336500 Cost Per Unit of RM(B) 1.20 1.20 1.20 1.20 1.20 Total Cost of Purchases(A*B) 99000 113400 106200 85200 403800 3 Zan Corporation Expected Cash Disbursement for Purchases 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year Total Cost of Purchases 99000 113400 106200 85200 403800 In the Quarter of Purchases(60%) 59400 68040 63720 51120 242280 In the Following Quarter of Purchases(40%) 6400 39600 45360 42480 133840 Total Expected Cash Disbursement for Purchases 65800 107640 109080 93600 376120 4 Zan Corporation Direct Labor Budget 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year Units to be Produced(A) 13000 16000 15000 14000 58000 Direct Labor Needed PU(B) 0.20 0.20 0.20 0.20 0.20 Total Direct Labor Hours NeededC=(A*B) 2600 3200 3000 2800 11600 Direct Labor Rate PH(D) 14.50 14.50 14.50 14.50 14.50 Total Direct Labor Cost(C*D) 37700 46400 43500 40600 168200

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