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 organisations 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 managers 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)

1) Monthly Sales Budget for the quarter ending June

2) Monthly Production Budget for the quarter ending June

3) Monthly Direct Materials Budget for the quarter ending June

4) Monthly Direct Labour Budget for the quarter ending June

ABC Ply itd Sales April May 67,500 $6,200 Jure July 54,000 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 irwentory 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 $4730 per unit $1,930 per unit 33.200 units 20% of that month's estimated sales Direct Material used per unit Rotor Quantity Cost per unit 4 $81 Blades 5 $108 Ada Material Used - 3 months to lune Rotor Blades 150,80.0 739,100 Actual cost of material Used - 3 months to June $48,651,840 $80,883,680 Budgeted Direct Labour time per unit 8 hours Actual Labour Used - 3 months to June 1,662,590 Adual cost of labour Used - 3 months to lune $70,660,100 Direct Labour cost per hour $40 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 1,362,800 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 ?? $0 $D Supervision Depreciation Rates & Utilities Other $37,800,000 $3,375,000 $2,789,100 $13,500,000 $0 $40.50 April May June $62,775,000 $50,220,000 $56,497,500 Variable Selling Expenses Fixed Selling & Admin Expenses Total Selling & Adinin 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 Dividend paid in June Land purchased in May $1,194,750 $185,100,000