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: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Units to be produced 14,000 17,000 16,000 15,000 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 7,000 grams. Management plans to pay for 60% of raw material purchases in the quarter acquired and 40% in the following quarter. Each unit requires 0.40 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. 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. Expert Answer

Explanation / Answer

1 & 2)

3)

4)

Quarter 1 2 3 4 Total Units to be produced 14000 17000 16000 15000 62000 Raw material required per unit (gm) 7 7 7 7 7 Total raw material required for production (gm) 98000 119000 112000 105000 434000 ending inventory (gms) 29750 28000 26250 7000 91000 Total requirement of raw materials (gms) 127750 147000 138250 112000 525000 Less: Beginning Inventory (gms) 24500 29750 28000 26250 108500 Raw material required to be purchased (gms) 103250 117250 110250 85750 416500 Cost per unit of raw material ($/gm) 1.4 1.4 1.4 1.4 1.4 Total cost of raw material to be purchased ($) 144550 164150 154350 120050 583100

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