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

Requirement 1 and 2 Estimated grams of raw material to be purchased and Cost of raw materials to be purchased Quarter 1 Quarter 2 Quarter 3 Quarter 4 Year Units to be produced 13000 16000 15000 14000 Raw materials need per unit (gram) 6 6 6 6 Total Raw materials needed for budgeted production units 78000 96000 90000 84000 Plus: Estimated Ending Inventory of Raw materials (25% of production needs of following quarter) 24000 22500 21000 8000 Less: Beginning Inventory of Raw Materials (Ending inventory of last quarter) 19500 24000 22500 21000 Estimated grams of raw materials to be purchased (Requirement 1) 82500 94500 88500 71000 Cost of raw material per gram $1.20 $1.20 $1.20 $1.20 Cost of raw materials to be purchased (requirement 2) $99,000 $113,400 $106,200 $85,200 $403,800 Estimated grams of raw material to be purchased and Cost of raw materials to be purchased Quarter 1 Quarter 2 Quarter 3 Quarter 4 Year Estimated grams of raw materials to be purchased (Requirement 1) 82500 94500 88500 71000 336500 Cost of raw materials to be purchased (requirement 2) $99,000 $113,400 $106,200 $85,200 $403,800 Requirement 3 – Total Cash Disbursement for materials Expected Cash disbursement for purchases of materials Quarter 1 Quarter 2 Quarter 3 Quarter 4 Year Cost of raw materials to be purchased $99,000 $113,400 $106,200 $85,200 Cash Disbursement for Raw materials: 60% in Current Qtr and 40% following quarter of purchase Quarter-1 Purchase $59,400 $39,600 Quarter-2 Purchase $68,040 $45,360 Quarter 3 Purchase $63,720 $42,480 Quarter-4 Purchase $51,120 Beginning Account payable 6400 Total Cash Disbursement $65,800 $107,640 $109,080 $93,600 $376,120 Requirement 4 --- Direct Labor Cost Estimated Direct Labor Cost Quarter 1 Quarter 2 Quarter 3 Quarter 4 Year Units to be produced 13000 16000 15000 14000 Direct labor hours needed per unit 0.2 0.2 0.2 0.2 Total Direct labor hours required for production 2600 3200 3000 2800 Direct labor Cost per hour $14.50 $14.50 $14.50 $14.50 Total Direct labor cost $37,700 $46,400 $43,500 $40,600 $168,200

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