ABC Pty Ltd produces turbines used in the production of hydro-electric generating equipment. The turbines are sold to various engineering companies that produce hydropowered generators in Australia.

Other information:

The company plans to purchase land for future expansion

Sales are on credit. Amounts not received in the month following the sale are written off as bad debt immediately.

The payment for labour and purchases of materials and other costs are for cash and paid for in the month of acquisition.

If the firm develops a cash shortage by the end of the month, sufficient cash is borrowed to cover the shortage (including any interest payments due ). Any cash borrowed is repaid one month later, as is the interest due.

During the process of preparing the organisation's budget, the Sales Manager is discussing the possible outcome of the forthcoming election with the Production Manager. She noted that if one of the major political parties wins the election and forms the government, there is a strong possibility that alternative sources of energy such as hydro-powered electricity may no longer be as actively supported by the new government as is the case under the current government.

The sales manager's primary concern is that market for alternative power generation is already volatile and subject to significant uncertainty. The production manager is also concerned about his plans to build the new automated manufacturing facility on the land to be purchased in May. This new manufacturing facility will enable him to manufacture, in-house, the major two parts he is now purchasing and to significantly automate the assembly process that is currently somewhat labour intensive. His projection for the new facility indicates a reduction in direct material & direct labour costs of 33% but that his fixed manufacturing overheads are likely to increase by 65% due to the increased investment in production capacity.

Please refer to this link for information and data of part A

https://www.coursehero.com/tutors-problems/Accounting/26455516-ABC-Pty-Ltd-produces-turbines-used-in-the-production-of-hydro-electric/

Question:

Provide a brief report addressing the Sales managers concerns, using the information provided on the cost structures identified in the budget prepared in Part A. Your report should also include a discussion on the impact of the production manager's intended investment in new manufacturing capacity. Support your report with relevant calculations.