Exercise 8-16 Direct Materials and Direct Labor Budgets [LO8-4, LO8-5 The produc

Question

Exercise 8-16 Direct Materials and Direct Labor Budgets [LO8-4, 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 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Units to be produced 25,000 28,000 27,000 26,000 In addition, 50,000 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 $8,800. Each unit requires 8 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 $11.50 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

RAW MATERIAL PURCHASE BUDGET Q1 Q2 Q3 Q4 TOTAL Budgeted Production units 25,000 28,000 27,000 26,000 106,000 Raw material required pere unit 8 8 8 8 8 Total Production needs 200,000 224,000 216,000 208,000 848,000 Add: Desired Ending Inventory 56,000 54,000 52,000 8,000 8,000 Total needs 256,000 278,000 268,000 216,000 856,000 Less: Beginning Inventory 50,000 56,000 54,000 52,000 50,000 Purchase Units 206,000 222,000 214,000 164,000 806,000 Cost price per unit 1.20 1.20 1.20 1.20 1.20 Budgeted Purchase in $ 247,200 266,400 256,800 196,800 967,200 EXPECTED CASH PAYMENTS Q1 Q2 Q3 Q4 TOTAL Beginning Accounts payable 8,800 8800 Quarter-1 purchases 148320 98880 247,200 Quarter-2 purchases 159840 106560 266,400 Quarter-3 purchases 154080 102,720 256,800 Quarter-4 Purchases 118,080 118,080 Total Cash disbursement 157,120 258,720 260,640 220,800 897,280 LABOUR COST BUDGETS QUARTER-1 QUARTER-2 QUARTER-3 QUARTER-4 total Units to be produced 25,000 28,000 27,000 26,000 106,000 Labour required per unit 0.2 0.2 0.2 0.2 0.2 Labour hours 5000 5600 5400 5200 21200 Labuor Rate per hour 11.5 11.5 11.5 11.5 11.5 Budgeted Labour cost in $ 57,500 64,400 62,100 59,800 243,800

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