Question 1 Lockey Company produces control valves used in the production of oil field equipment. The control valves are sold to various gas and oil engineering companies throughout the country. Projected sales units for the coming four months are as follows: The following data pertain to production policies and manufacturing specifications followed by Lockey: a. Finished goods inventory on 1 January is 13000 . The desired ending inventory for each month is 70% of the next month's sales. b. The data on materials used are as follows: Inventory policy dictates that sufficient materials be on hand at the beginning of the month to produce 50% of that month's estimated sales. This is exactly the amount of material on hand on 1 January. c. The direct labour used per unit of output is three hours. The average direct labour cost is R45 per hour. d. Overhead for each month is estimated using a flexible budget formula. The activity is measured in direct labour hours. e. Monthly selling and administrative expenses are also estimated using a flexible budgeting formula. The activity is measured in units sold. f. The unit selling price of the control valve is R900. Assignment 1 Marks: 100 Due: 2 Sept 2023 g. In February, the company plans to purchase land for future expansion. The land costs R900 000 . h. All sales and purchases are for cash. Cash balance on 1 January equals R1 629000 . If the firm develops a cash shortage by the end of the month, sufficient cash in multiples of R1 000 is borrowed to cover the shortage. Any cash borrowed is repaid one month later, as is the interest due. The interest rate is 12% per annum. Required: Prepare monthly operating budget for the first quarter with the following schedules: 1.11.21.31.41.51.61.71.81.91.10SalesbudgetProductionbudgetDirectmaterialspurchasesbudgetDirectlabourbudgetOverheadbudgetSellingandadministrativebudgetEndingfinishedgoodsinventorybudgetCostofgoodssoldbudgetBudgetedincomestatement(ignoreincometaxes)Cashbudget 1.1 Sales budget 1.2 Production budget 1.3 Direct materials purchases budget 1.4 Direct labour budget 1.5 Overhead budget 1.6 Selling and administrative budget 1.7 Ending finished goods inventory budget 1.8 Cost of goods sold budget 1.9 Budgeted income statement (ignore income taxes) 1.10 Cash budget