Direct Materials and Direct Labor Budgets [LO4, LO5] 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 . . . . . . 5,000 8,000 7,000 6,000 In addition, the beginning raw materials inventory for the 1st Quarter is budgeted to be 6,000 grams and the beginning accounts payable for the 1st Quarter is budgeted to be $2,880. 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. Prepare the company’s direct materials budget and schedule of expected cash disbursements for purchases of materials for the upcoming fi scal year. 2. Prepare the company’s direct labor budget for the upcoming fi scal year, assuming that the direct labor workforce is adjusted each quarter to match the number of hours required to produce the forecasted number of units produced.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Direct Materials and Direct Labor Budgets [LO4, LO5]
The production department of Zan Corporation has submitted the following
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Units to be produced . . . . . . 5,000 8,000 7,000 6,000
In addition, the beginning raw materials inventory for the 1st Quarter is budgeted to be 6,000 grams and the beginning accounts payable for the 1st Quarter is budgeted to be $2,880. 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. Prepare the company’s direct materials budget and schedule of expected cash disbursements for purchases of materials for the upcoming fi scal year.
2. Prepare the company’s direct labor budget for the upcoming fi scal year, assuming that the direct labor workforce is adjusted each quarter to match the number of hours required to produce the forecasted number of units produced.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
