Problem 1018 Source Managerial Accounting Asia Global Editio

Problem 10-18

Source: Managerial Accounting, Asia Global Edition, 2e

The production department of Zan Corporation has submitted the following forecast of units to be produced by quarter for the upcoming fiscal year.

Units Produced:

1st Quarter: 5,000

2nd Quatrter : 8,000

3rd Quarter: 7,000

4th Quarter: 6,000

In addition, the beginning raw materials inventory for the 1^st quarter is budgeted to be 6,000 grams and the beginning accounts payable for the 1^st quarter is budgeted to be $ 2,880.

Each unit requires 8 grams of raw materials that costs $1.20 per gram. Management desires to end each quarter with an inventory of raw materials equal to 25% of the following quarters production needs. The desired ending inventory for the 4^th Quarter is 8,000 grams. Management plans to pay for 60% of raw materials purchases in the quarter acquired and 40% in the following quarter. Each unit requires .20 direct labor hours and direct laborers are paid $ 11.50 per hour.

Required:

Prepare the company’s direct materials budget and schedule of expected cash disbursements for purchases of materials for the upcoming fiscal year.

Solution

Direct materials budget 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year Required Production          5,000          8,000          7,000          6,000          26,000 Raw materials per unit x 8 x 8 x 8 x 8 x 8 Production requirement       40,000       64,000       56,000       48,000       208,000 Add: Desired ending Inventory       16,000       14,000       12,000          8,000            8,000 Total Requirement       56,000       78,000       68,000       56,000       216,000 Less: Opening Inventory          6,000       16,000       14,000       12,000            6,000 Raw materials to be purchased       50,000       62,000       54,000       44,000       210,000 Cost of Raw material per unit ($) x 1.20 x 1.20 x 1.20 x 1.20 x 1.20 Cost of Raw materials to be purchased $       60,000       74,400       64,800       52,800       252,000 Schedule of Expected Cash Disbursements for Materials 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year Accounts payable opening balance $          2,880                   2,880 1st Quarter purchases       36,000       24,000                60,000 2nd Quarter purchases       44,640       29,760                74,400 3rd Quarter purchases       38,880       25,920                64,800 4th Quarter purchases       31,680                31,680 Total cash disbursements for materials       38,880       68,640       68,640       57,600              233,760