Background information

GA Group has recently acquired GAM Ltd and Sari Motors. GAM Ltd. is one of the automotive industry's most iconic brands. The company's name is synonymous with years of world-first innovation, responsible for ground-breaking turbocharging technologies that have redefined performance and mobility. From mainstream passenger vehicles to F1 racing cars, GAM Ltd.'s turbo technology has been the boost behind some of the most significant moments in automotive history. Today, the company employs not less than 7,500 employees and 1250 engineers worldwide. In the last decade, GAM Ltd continued its expansion with 2 additional R&D centres (in France and Czech Republic) and 3 additional manufacturing facilities (in Slovakia, Romania, and Ireland). Mr. Craig Balis, the new CEO of the company who took over from Mr. Olivier Rabiller, wants to improve the profitability and liquidity of the company. Thus, under the new leadership, GAM Ltd will continue to set the pace, to create the differentiated high-performance systems that deliver competitive advantage to its customers and help redefine the end user experience through experience, talent and a mindset that challenges convention.

Renault, a French F1 racing car engine manufacturer would like to regain the glory it had in the early 2000s. GAM Ltd.'s leadership team is confident that an adapted version of their new cutting-edge technology, the XTF505, could improve Renault's engine performance. GAM Ltd is operating at 90% of its capacity and has decided to tender for the manufacture of the BXTF505 turbo for Renault. During a recent board meeting, Mr. Craig Balis suggested that if the bid is accepted, it is likely GA Group will earn additional revenues from future servicing of Renault's engines. On that basis, the board of GA Group is unanimously ready to accept a price from Renault that is based on the relevant costs of making the BXTF505.

Jessica Zhang, the Chief Engineer of Renault, has already met with GAM Ltd to determine the specification of the BXTF505 and she has worked with a junior accountant from GAM Ltd to determine the cost estimate for the BXTF505 as shown below. Due to the poor liquidity of the company currently, a bank overdraft amounting to $20,000 would be required for the project duration. The overdraft would be repaid at the end of the period. The bank's overdraft rate is 18%.

Schedule prepared by the junior accountant Note $ Engineering specification 1 1,500 BN59 Direct material 2 61,000 BN60 Direct material 3 2,500 Components Direct labour Supervision Machine hire Overhead costs 45678 6,000 12,500 350 Total 2,500 5,500 91,850