Arrowcrest Group Pty Ltd (AGPL) is a locally owned private company that trades as ROH Automotive and ROH Wheels Australia and generates the majority of its revenue from the manufacture and distribution of automotive products and farming machinery. Arrowcrest is the largest manufacturer of aluminium road wheels in Australia, producing aluminium road wheels for both original equipment manufacturers (OEMs) and aftermarket customers. The company employs approximately 150 people and is administered from its head office in Woodville North, South Australia. The Arrowcrest Group is comprised of a number of smaller companies. The group divides its operations into two separate divisions - automotive and industrial & farm equipment (see details on https://www.ibisworld.com/au/company/arrowcrest-group-pty-ltd/6121/).

You have been nominated by your consultancy group to assist in preparing quarterly budget for the year 2020. The following data related to some products that are classified under the automotive part normally sold both to local car dealers and international car manufacturing firms. The budgeted sales volume for some months of year 2020 is presented below:

Month

Amount

Month

Amount

June

32,000

September

35,000

July

30,000

October

36,000

August

34,000

November

32,600

The management accountant at AGPL has summarised inventory balances as follows.

a. Finished goods inventory on 1 July 2020 is expected to be 20,000 units each costing $420. The desired ending inventory for each month is 30% of the next month's sales units.

b. Standard direct material (Raw Mat.) requirements and costs for each part are as follows:

Direct materials

Quantity

Cost per Kg.

Raw Mat. -A

2 Kg

$4.00

Raw Mat. -B

3

1.60

AGPL's direct materials inventory policy indicates that the firm keeps ending raw materials inventory that is equal to 30% of Raw Mat-A and 40% of Raw Mat-B to the production requirements of the following month.

c. The production of one unit is estimated to take four hours of direct labour at an hourly pay rate of $22.

d. AGPL uses flexible budget formula and the estimated monthly overhead costs are presented below. The company uses direct labour hours as cost driver for manufacturing overhead costs.

BBAC501 Management Accounting Group Assignment

Term 2 2020

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Overhead cost

Fixed

Variable

Supplies

-

$ 1.12

Power

-

0.65

Maintenance

$24,000

0.42

Supervision

20,000

-

Depreciation

140,000

-

Taxes

18,000

-

Other

50,000

1.60

e. Budget estimates for selling and administrative expenses are made monthly using a flexible budgeting formula and taking sales volume as a cost driver.

Fixed costs

Variable costs

Supplies

$80,000

-

Sales commission

-

$2.00

Depreciation expense

45,000

-

Shipping expenses

-

1.40

Other expenses

24,000

0.75

f. Budgeted sales price per motor part is $480.

g. Sales are 70% collected in the month of sales, 30% in the month following sales and the balance is collected in the second month after sales. All purchases are made in cash and the company gets a discount of 2%. The cash balance on 1 July 2020 is estimated to be $250,000. The company borrows money when it faces cash shortages each month. The loan agreement signed with a local Bank stipulates that money is borrowed in multiples of $1,000 at an interest rate of 6%. The company makes repayment on loans when it has cash surplus.

Required:

Part - A: Prepare a monthly operating budget for the third quarter (July-September) of 2020 (assuming the company operates from January 1st to December 31st of each year) including the quarterly total for each of the first eight schedules: (14.5 Marks)

1. Sales budget 1 marks

2. Production budget 1.5 marks

3. Direct material purchases budget 2 marks

4. Direct labour budget 1.5 marks

5. Overheads budget 1.5 marks

6. Selling and administrative expense budget 1.5 marks

7. Cost of goods sold budget 2 marks

8. Budgeted income statement 2 marks

9. Budgeted cash balance only for the month ending 31st of July. (Hence: you need to prepare detailed cash budget only for the month of July). 1.5 marks

(Maximum of 2 marks will be deducted if the format of presentation is not good.)

BBAC501 Management Accounting Group Assignment

Term 2 2020

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Part-B: Critical thinking and decision making (5.5 Marks) - To be answered individually.

As a management accounting consultant, the finance department has shared the following issues seeking your support in the process of evaluating of the current budgeting system and future decisions regarding product profitability.

AGPL is planning to introduce automation in its production plant and this is anticipated to reduce direct labour costs by 60%. Additionally, the company has a plan to subcontract its product sales activities to an external product distribution firm that is willing to handle the activity in return will charge AGPL sales commission of 10%. The company wants you to critically analyse and evaluate the implications of the planned changes. Also, they are keen to hear from you details of the implication that the proposal will have on costs and profitability of AGPL assuming the above stated changes are implemented. (Hence: you are required to support your argument and views by presenting numerical computations on the basis of data given under Part A).

Assuming the above changes are implemented, what is the impact on the budgeting practice of the company? Please offer your views and give suggestions that the company should consider in its budgeting practice post implementation of the changes. In your expert idea, provide explanation whether the above changes will benefit the company or not down the truck given the wider impact of COVID-19 on the industry. Please present your response to the questions raised in Part-B using a memorandum.

Specific Requirement of the Report's Memorandum

? The report should not be longer than 500 words.

? Paragraphs of the report should be 1.5 lines spaced and written in a font size of 12 (Times New Roman or Arial are recommended to be used).

? Margins: top, bottom, right-hand and left-hand should be at least 2cm

? A hand-written report will not be marked.

? All pages of your report must be page numbered and in correct sequence.

? Cover page: should include reference of the subject (unit name and code), your name and student number and the date of submission.

? References: referencing of material used in the preparation of your report must be included in the report and please ensure you reference correctly. You can seek assistance if you have any issues in referencing.

BBAC501 Group Assignment 2T 2020.pdf - Adobe Acrobat Reader DC X File Edit View Window Help Home Tools BBAC501 Group As... x (? A Sign In 4 O + 139% Y do Share Specific Requirement of the Report's Memorandum . The report should not be longer than 500 words. LO 52 . Paragraphs of the report should be 1.5 lines spaced and written in a font size of 12 (Times New Roman or Arial are recommended to be used). E . Margins: top, bottom, right-hand and left-hand should be at least 2cm . A hand-written report will not be marked. . All pages of your report must be page numbered and in correct sequence. . Cover page: should include reference of the subject (unit name and code), your name and student number and the date of submission. . References: referencing of material used in the preparation of your report must be included in the report and please ensure you reference correctly. You can seek assistance if you have any issues in referencing. O Ei em N WE 23:41 30/06/2020