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 Units to be produced 11,000 14,860 13,800 12,000 In addition, 11,000 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 $6,000. Each unit requires 4 grams of raw material that costs $160 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 6,000 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 $12.50 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

Answer 1 & 2 Calculation of estimated grams of raw materials that need to be purchased and cost of raw material purchases Quarter 1 Quarter 2 Quarter 3 Quarter 4 Year Units to be produced 11000 14000 13000 12000 50000 Raw material required per unit (in grams) 4 4 4 4 4 Total Raw material requirement 44000 56000 52000 48000 200000 Add : Ending raw material inventory 14000 13000 12000 6000 6000 Less : Beginning raw material inventory 11000 14000 13000 12000 11000 Estimated raw materials to be purchased (in grams) 47000 55000 51000 42000 195000 x Cost per Gram $1.60 $1.60 $1.60 $1.60 $1.60 Cost of raw material purchases $75,200.00 $88,000.00 $81,600.00 $67,200.00 $312,000.00 Answer 3 Calculation of expected cash disbursements for purchase of raw material Quarter 1 Quarter 2 Quarter 3 Quarter 3 Year Accounts Payable $6,000.00 $6,000.00 Quarter 1 Purchases $45,120.00 $30,080.00 $75,200.00 Quarter 2 Purchases $52,800.00 $35,200.00 $88,000.00 Quarter 3 Purchases $48,960.00 $32,640.00 $81,600.00 Quarter 4 Purchases $40,320.00 $40,320.00 Expected Cash disbursements $51,120.00 $82,880.00 $84,160.00 $72,960.00 $291,120.00 Answer 4 Calculation of estimated direct labour cost for each quarter Quarter 1 Quarter 2 Quarter 3 Quarter 3 Year Units to be produced 11000 14000 13000 12000 50000 x Direct labour hours required per unit 0.2 0.2 0.2 0.2 0.2 Total Direct Labour hours requirement 2200 2800 2600 2400 10000 x Cost per direct labour hour 12.5 12.5 12.5 12.5 12.5 Direct Labour cost $27,500.00 $35,000.00 $32,500.00 $30,000.00 $125,000.00

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