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.

Details of the operations for the coming four months are provided in the attached excel

spread sheet.

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.

Required:

Part A: Prepare Operating Budgets as follows: (75% of the marks)

Required: Prepare Operating Budgets as follows:

5) Monthly Manufacturing Overhead Budget for the quarter ending June

6) Monthly Selling & Administrative Expenses Budget for the quarter ending June

7) Ending Inventory Budget for the month of June

8) Cost of goods Sold Budget for the quarter

9) Budgeted Income Statement for the quarter

10) Monthly Cash budget for the quarter. \

ABC Pty Ltd Sales April May 67,500 $6,200 June 54,000 July 60,750 81,000 Actual Sales Volume 3-moths to June 162,200 Units Unit selling price The desired finished goods inventory for each month is The full absorption cost of the opening finished goods inventory is The variable manufacturing cost of the opening finished goods inventory is Finished goods inventory on April 1 is Materials required to be on hand at the beginning of the month to produce 60% of the next month's sales $4,730 per unit $1,930 per unit 43,200 units 20% of that month's estimated sales Direct Material used per unit Rotor 4 Quantity Cost per unit Blades 5 $ 108 Actual Material Used - 3 months to June Rotor Blades 750,800 729,100 Actual cost of material Used - 3 months to June $48,651,840 $80,883,680 $81 Budgeted Direct Labour time per unit 8 hours Actual Labour Used - 3 months to June 1,662,590 Actual cost of labour Used - 3 months to June $70,660,100 Direct Labour cost per hour $50 Budgeted Manufacturing Overheads Recent statistical data for Maintenance Costs Fixed Cost component per month Variable Cost component per DL hour $0 Indirect labour Power Maintenance Labour Hours 1,302,800 1,485,000 1,363,500 1,242,000 $56.70 $5.40 ?? Total Maintenance Costs $ 79,920,000 $86,805,000 $82,215,000 $77,625,000 $0 ?? Supervision Depreciation Rates & Utilities Other $37,800,000 $3,375,000 $2,789,100 $13,500,000 $0 $0 $0 $40.50 April May June $62,775,000 $50,220,000 $56,497,500 Variable Selling Expenses Fixed Selling & Admin Expenses Total Selling & Admin Expenses $24,300,000 $19,440,000 $21,870,000 $87,075,000 $ 69,660,000 $78,367,500 Cash on hand at opening $3,375,000 Annual interest rate on borrowing 6% Cash Sales Received in month of sale Received in month after sale $0 80% 18% Balance of accounts receivables at the start of the month $82,863,000 Dividends paid in June Land purchased in May $1,194,750 $185,100,000 ABC Pty Ltd Sales April May 67,500 $6,200 June 54,000 July 60,750 81,000 Actual Sales Volume 3-moths to June 162,200 Units Unit selling price The desired finished goods inventory for each month is The full absorption cost of the opening finished goods inventory is The variable manufacturing cost of the opening finished goods inventory is Finished goods inventory on April 1 is Materials required to be on hand at the beginning of the month to produce 60% of the next month's sales $4,730 per unit $1,930 per unit 43,200 units 20% of that month's estimated sales Direct Material used per unit Rotor 4 Quantity Cost per unit Blades 5 $ 108 Actual Material Used - 3 months to June Rotor Blades 750,800 729,100 Actual cost of material Used - 3 months to June $48,651,840 $80,883,680 $81 Budgeted Direct Labour time per unit 8 hours Actual Labour Used - 3 months to June 1,662,590 Actual cost of labour Used - 3 months to June $70,660,100 Direct Labour cost per hour $50 Budgeted Manufacturing Overheads Recent statistical data for Maintenance Costs Fixed Cost component per month Variable Cost component per DL hour $0 Indirect labour Power Maintenance Labour Hours 1,302,800 1,485,000 1,363,500 1,242,000 $56.70 $5.40 ?? Total Maintenance Costs $ 79,920,000 $86,805,000 $82,215,000 $77,625,000 $0 ?? Supervision Depreciation Rates & Utilities Other $37,800,000 $3,375,000 $2,789,100 $13,500,000 $0 $0 $0 $40.50 April May June $62,775,000 $50,220,000 $56,497,500 Variable Selling Expenses Fixed Selling & Admin Expenses Total Selling & Admin Expenses $24,300,000 $19,440,000 $21,870,000 $87,075,000 $ 69,660,000 $78,367,500 Cash on hand at opening $3,375,000 Annual interest rate on borrowing 6% Cash Sales Received in month of sale Received in month after sale $0 80% 18% Balance of accounts receivables at the start of the month $82,863,000 Dividends paid in June Land purchased in May $1,194,750 $185,100,000