Exercise 8-16 Direct Materials and Direct Labor Budgets [L08-4, LO8-5) The produ

Question

Exercise 8-16 Direct Materials and Direct Labor Budgets [L08-4, LO8-5) The production department of Zan Corporation has submitted the following forecast of units to be produced by quarter for the upcoming fiscal year Units to be produced 14,800 17,880 16,ee0 15,800 In addition, 24,500 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 $6,600. Each unit requires 7 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 7000 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 $15.50 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. 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 s required to produce the estimated number of units produced

Explanation / Answer

RAW MATERIAL PURCHASE BUDGET Q-1 Q-2 Q-3 Q-4 Total Budgeted Production 14,000 17,000 16,000 15,000 62,000 Raw material requirement 7 7 7 7 7 Raw material required in grams 98,000 119,000 112,000 105,000 434,000 Add: Desired Ending Inventory 29,750 28,000 26,250 7,000 7,000 Total needs 127,750 147,000 138,250 112,000 441,000 Less: Beginning Inventory 24,500 29,750 28,000 26,250 24,500 Purchase Units 103,250 117,250 110,250 85,750 416,500 Cost price per unit 1.40 1.40 1.40 1.40 1.40 Budgeted Purchase in $ 144,550 164,150 154,350 120,050 583,100 EXPECTED CASH PAYMENTS Q-1 Q-2 Q-3 Q-4 Total Beginning Accounts payable 6,600 6600 Q-1 Purchases 86730 57820 144550 Q-2 Purchases 98490 65660 164150 Q-3 Purchases 92610 61,740 154350 Q-4 Purchases 72,030 72030 Total Cash disbursement 93,330 156,310 158,270 133,770 541680 LABOUR COST BUDGETS Q-1 Q-2 Q-3 Q-4 Total Units to be produced 14,000 17,000 16,000 15,000 62,000 Labour required per unit 0.4 0.4 0.4 0.4 0.4 Labour hours 5600 6800 6400 6000 24800 Labuor Rate per hour 15.5 15.5 15.5 15.5 15.5 Budgeted Labour cost in $ 86,800 105,400 99,200 93,000 384,400

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