Exercise 8-16 (Algo) 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 | 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 unit 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.
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Problem 8-30 (Static) Integration of the Sales, Production, and Direct Materials Budgets [LO8-2, LO8-3, LO8-4]
Milo Company manufactures beach umbrellas. The company is preparing detailed budgets for the third quarter and has assembled the following information to assist in the budget preparation:
The Marketing Department has estimated sales as follows for the remainder of the year (in units):
| July | 30,000 | October | 20,000 |
| August | 70,000 | November | 10,000 |
| September | 50,000 | December | 10,000 |
The selling price of the beach umbrellas is $12 per unit.
All sales are on account. Based on past experience, sales are collected in the following pattern:
| 30% | in the month of sale |
| 65% | in the month following sale |
| 5% | uncollectible |
Sales for June totaled $300,000.
The company maintains finished goods inventories equal to 15% of the following month’s sales. This requirement will be met at the end of June.
Each beach umbrella requires 4 feet of Gilden, a material that is sometimes hard to acquire. Therefore, the company requires that the ending inventory of Gilden be equal to 50% of the following month’s production needs. The inventory of Gilden on hand at the beginning and end of the quarter will be:
| June 30 | 72,000 | feet |
| September 30 | ? | feet |
Gilden costs $0.80 per foot. One-half of a month’s purchases of Gilden is paid for in the month of purchase; the remainder is paid for in the following month. The accounts payable on July 1 for purchases of Gilden during June will be $76,000.
Required:
1. Calculate the estimated sales, by month and in total, for the third quarter.
2. Calculate the expected cash collections, by month and in total, for the third quarter.
3. Calculate the estimated quantity of beach umbrellas that need to be produced in July, August, September, and October.
4. Calculate the quantity of Gilden (in feet) that needs to be purchased by month and in total, for the third quarter.
5. Calculate the cost of the raw material (Gilden) purchases by month and in total, for the third quarter.
6. Calculate the expected cash disbursements for raw material (Gilden) purchases, by month and in total, for the third quarter.
Exercise 8-16:
1 &2:
| Zan Corporation | |||||
| Direct Materials Budget | |||||
| 1st | 2nd | 3rd | 4th | ||
| Quarter | Quarter | Quarter | Quarter | Year | |
| Required production in units of finished goods | 9000 | 12000 | 11000 | 10000 | 42000 |
| Units of raw materials needed per unit of finished goods | 7 | 7 | 7 | 7 | 7 |
| Units of raw materials needed to meet production | 63000 | 84000 | 77000 | 70000 | 294000 |
| Add: Desired Ending Raw Material inventory (25% of next Quarter production needs) | 21000 | 19250 | 17500 | 8000 | 8000 |
| Total units of raw materials needed | 84000 | 103250 | 94500 | 78000 | 302000 |
| Less: Beginning Raw Material inventory | 15750 | 21000 | 19250 | 17500 | 15750 |
| Units of raw materials to be purchased | 68250 | 82250 | 75250 | 60500 | 286250 |
| Unit cost of raw materials | $1.20 | $1.20 | $1.20 | $1.20 | $1.20 |
| Cost of raw materials to be purchased | $81,900 | $98,700 | $90,300 | $72,600 | $3,43,500 |
3.
| Zan Corporation | |||||
| Schedule of Expected Cash Disbursements for Materials | |||||
| 1st | 2nd | 3rd | 4th | ||
| Quarter | Quarter | Quarter | Quarter | Year | |
| Beginning accounts payable | $5,600 | $5,600 | |||
| 1st Quarter purchases | $49,140 | $32,760 | $81,900 | ||
| 2nd Quarter purchases | $59,220 | $39,480 | $98,700 | ||
| 3rd Quarter purchases | $54,180 | $36,120 | $90,300 | ||
| 4th Quarter purchases | $43,560 | $43,560 | |||
| Total cash disbursements for materials | $54,740 | $91,980 | $93,660 | $79,680 | $3,20,060 |
4.
| Zan Corporation | |||||
| Direct Labor Budget | |||||
| 1st | 2nd | 3rd | 4th | ||
| Quarter | Quarter | Quarter | Quarter | Year | |
| Required production in units | 9000 | 12000 | 11000 | 10000 | 42000 |
| Direct labor-hours per unit | 0.20 | 0.20 | 0.20 | 0.20 | 0.20 |
| Total direct labor-hours needed | 1800 | 2400 | 2200 | 2000 | 8400 |
| Direct labor cost per hour | $15.50 | $15.50 | $15.50 | $15.50 | |
| Total direct labor cost | $27,900 | $37,200 | $34,100 | $31,000 | $1,30,200 |
Problem 8-30: