As part of your study, you are given an opportunity to apply the skills and knowledge you have gained in management accounting by taking a case-study presented by Victoria Consulting and Accountancy Services (VCAS). The case-study data relates to a newly formed small firm called Modern-Goods Manufacturing Inc. (MGMI) that begun manufacturing operations in the year 2020. VCAS has assigned you to conduct detailed analysis and answer the questions presented in Parts A and B. Facts given in the case- study elaborate that the products made by MGMI are well regarded and reasonably prices in the market. The case firm owns a small store located in Melbourne and trades its goods directly from the store and via online trading platforms. Owners of the business are not trained in accounting and lack budgeting and control skills. You are expected to apply the concepts you have learnt in Management Accounting and other accounting units to help you address the issues raised by the business. You will be working in small groups to answer questions presented under Part-A. The task includes preparation of quarterly budget for the year 2022. The following data relate particularly to one product produced by MGMI. The accountant has presented you with budgeted sales volume for some months of year 2021 and 2022 is presented below: Month Volume Month Volume December 2021 34,000 March 40,000 January 2022 28,000 April 42,000 February 38,000 May 36,400 The accountant at MGMI has presented more data about inventory and cost as follows. a. The desired ending finished goods inventory for each month is 20% of the next months sales units. b. Standard direct materials (Raw Mat.) requirements and costs are as follows: Each product requires 4 Kgs of Raw Mat-A at $3.80 per kilogram. Each product requires 6 Kgs of Raw Mat-B at $4.20 per kilogram. MGMIs direct materials inventory policy indicates that the firm keeps ending raw materials inventory that is equal to 20% of Raw Mat-A and 25% of Raw Mat-B to the production requirements of the following month. c. Production of each unit is expected to take five hours of direct labour at an hourly pay rate of $25. d. MGMI uses the concept of flexible budget, and the estimated monthly overhead costs are presented below. MGMI uses direct labour hours as cost driver for manufacturing overhead costs. Overhead cost Fixed Variable Supplies - $ 1.60 Power - 1.40 Maintenance $25,000 0.80 BBAC501 Management Accounting - Assignment Term 4 2021 Page 3 of 5 Supervision 26,000 - Depreciation 120,000 - Taxes 26,000 - Other 52,000 2.20 e. Budgeted selling and administrative expenses are made on monthly basis using a flexible budget formula and that sales volume is considered as the best cost driver. Fixed costs Variable costs Supplies $82,000 - Sales commission - $2.50 Depreciation expense 48,000 - Shipping expenses - 1.40 Other expenses 26,000 0.75 f. Budgeted sales price per product is $400. g. Sales are 60% collected in the month of sales and 40% in the month following sales. All purchases are made in cash and the company gets a discount of 2%. The cash balance on 1st of January 2022 is estimated to be $240,000. 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 5%. The company makes repayment on loans when it has cash surplus. Required: Part A: Prepare a monthly operating budget for the first quarter (January-March) of 2022 (assuming the company operates from 1st of January to 31st of December each year). Please also include the total quarterly budget for requirements 1 to 8 below: (15 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 (hence, first compute cost per unit) 2 marks 8. Budgeted income statement (use contribution income statement) 2 marks 9. Budgeted cash balance only for the month ending 31st of January. (Hence: you need to prepare detailed cash budget only for the month of January). 2 marks (Maximum of 2 marks will be deducted if the format of presentation is not good.)