Exercise 8-16 Direct Materials
Exercise 8-16 Direct Materials and Direct Labor Budgets [LO8-4,LO8-5]
The production department of Zan Corporation has submitted thefollowing forecast of units to be produced by quarter for theupcoming fiscal year:
| 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | |
| Units to be produced | 5,000 | 8,000 | 7,000 | 6,000 |
In addition, 6,000 grams of raw materials inventory is on handat the start of the 1st Quarter and the beginning accounts payablefor the 1st Quarter is $2,880.
Each unit requires 8 grams of raw material that costs $1.20 pergram. Management desires to end each quarter with an inventory ofraw materials equal to 25% of the following quarter’s productionneeds. The desired ending inventory for the 4th Quarter is 8,000grams. Management plans to pay for 60% of raw material purchases inthe quarter acquired and 40% in the following quarter. Each unitrequires 0.20 direct labor-hours and direct laborers are paid$11.50 per hour.
Required:
1.&2. Calculate the estimated grams of raw material thatneed to be purchased and the cost of raw material purchases foreach quarter and for the year as a whole.
3. Calculate the expected cash disbursements for purchases ofmaterials for each quarter and for the year as a whole.
4. Calculate the estimated direct labor cost for each quarterand for the year as a whole.
Answer:
| RAW MATERIAL PURCHASEBUDGET | |||||||
| Q1 | Q2 | Q3 | Q4 | Year | |||
| Budgeted Production units | 5,000 | 8,000 | 7,000 | 6,000 | 26,000 | ||
| RM required per unit | 8 | 8 | 8 | 8 | 8 | ||
| Total RM requiremnt | 40,000 | 64,000 | 56,000 | 48,000 | 2,08,000 | ||
| Add: Desired EndingInventory | 16,000 | 14,000 | 12,000 | 8,000 | 8,000 | ||
| Total needs | 56,000 | 78,000 | 68,000 | 56,000 | 2,16,000 | ||
| Less: Beginning Inventory | 6,000 | 16,000 | 14,000 | 12,000 | 6,000 | ||
| Purchase Units | 50,000 | 62,000 | 54,000 | 44,000 | 2,10,000 | ||
| Cost price per unit | 1.20 | 1.20 | 1.20 | 1.20 | 1.20 | ||
| Budgeted Purchase in $ | 60,000 | 74,400 | 64,800 | 52,800 | 2,52,000 | ||
| EXPECTED CASHPAYMENTS | |||||||
| Q1 | Q2 | Q3 | Q4 | Year | |||
| Beginning Accounts payable | 2,880 | 2,880 | |||||
| Q1 Purchase | 36,000 | 24000 | 60,000 | ||||
| Q2 Purchase | 44640 | 29760 | 74,400 | ||||
| Q3 Purchase | 38880 | 25,920 | 64,800 | ||||
| Q4 Purchase | 31,680 | 31,680 | |||||
| Total Cash disbursement | 38,880 | 68,640 | 68,640 | 57,600 | 2,33,760 | ||
| LABOUR COSTBUDGETS | |||||||
| QUARTER-1 | QUARTER-2 | QUARTER-3 | QUARTER-4 | YEAR | |||
| Units to be produced | 5,000 | 8,000 | 7,000 | 6,000 | 26,000 | ||
| Labour required per unit | 0.2 | 0.2 | 0.2 | 0.2 | 0.2 | ||
| Labour hours | 1000 | 1600 | 1400 | 1200 | 5200 | ||
| Labuor Rate per hour | 11.5 | 11.5 | 11.5 | 11.5 | 11.5 | ||
| Budgeted Labour cost in $ | 11,500 | 18,400 | 16,100 | 13,800 | 59,800 |
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