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: lst Quarter 2nd Quarter 3rd Quarter 4th Quarter Units to be produced 9,000 12,000 11,000 10,000 In addition, 15,750 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 $5,600 Each unit requires 7 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 unt requires 0.20 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 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 &2 Raw material purchase budget 1st quater 2nd quarter 3rd quarter 4th quarter Total Production in units 9000 12000 11000 10000 42000 Per unit of material required 7 7 7 7 7 Material needed for production 63000 84000 77000 70000 294000 Add ending material inventory 25% 21000 19250 17500 8000 8000 Total material requirements 84000 103250 94500 78000 302000 Less beginning material inventory 15750 21000 19250 17500 15750 Material to be purchased 68250 82250 75250 60500 286250 Cost per pound of material 1.2 1.2 1.2 1.2 1.2 Total material Cost 81900 98700 90300 72600 343500 3 Cash disbursement 1st quater 2nd quarter 3rd quarter 4th quarter Total For accounts payable 5600 5600 Previous period 32760 39480 36120 108360 Current period 49140 59220 54180 43560 206100 Total cash disbursement 54740 91980 93660 79680 320060 4 Direct labor budget 1st quater 2nd quarter 3rd quarter 4th quarter Total Production in units 9000 12000 11000 10000 42000 Direct labor hours 0.2 0.2 0.2 0.2 0.2 Total direct labor hours 1800 2400 2200 2000 8400 Per hour cost 15.5 15.5 15.5 15.5 15.5 Total direct labor cost 27900 37200 34100 31000 130200

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