The origins of ARB go back to 1975, when company founder, Tony Brown, was inspired by a 4WDing trip through the top end of Australia. Back then, 4WDers relied on homemade or ill-fitting equipment that was not designed for extensive Outback expeditions. Endless corrugated roads, extreme temperatures, and the heavy loads carried by Australian travellers were tremendously punishing on vehicles that regularly tackled these kinds of conditions. Tony's many years spent toiling on his Series 1 Land Rover proved extremely beneficial to others in the top end during his travels. The products produced by ARB are well engineered and durable equipment that would meet the vigorous demands of 4WD owners. ARB has a vast international presence, with offices in the USA, Europe and the Middle East, and an export network that extends through more than 100 countries around the globe. ARB's philosophy, however, has never wavered from its original course - quality, reliability and practicality above all else. (https://www.arb.com.au/about/) Finished goods are stored at ARB's main warehouse in Melbourne, Australia, where they are shipped out to over 100 countries worldwide. In addition to the products that ARB makes, its stores contain floor to ceiling stacks of other leading brand name accessories that are of high standard such as IPF lights, Safari snorkels, Hi-Lift jacks and Warn winches. Your group has been selected to assist in preparing quarterly budget for the year 2021. The following data relate particularly to one vehicle part that ARB produces. The budgeted sales volume for some months of year 2021 is presented below: Month Volume Month Volume June 34,000 September 40,000 July 28,000 October 42,000 August 38,000 November 36,400 The management accountant at ARB has summarised inventory balances as follows. a. The desired ending finished goods inventory for each month is 20% 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. -X 3 Kg $4.50 Raw Mat. -Y 5 3.50 ARB's direct materials inventory policy indicates that the firm keeps ending raw materials inventory that is equal to 25% of Raw Mat-X and 30% of Raw Mat-Y to the production requirements of the following month. BBAC501 Management Accounting - Assignment Term 4 2020 Page 3 of 5 c. The production of one unit is estimated to take six hours of direct labour at an hourly pay rate of $24. d. ARB 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. Overhead cost Fixed Variable Supplies - $ 1.50 Power - 1.25 Maintenance $26,000 0.85 Supervision 24,000 - Depreciation 121,000 - Taxes 24,000 - Other 62,400 2.40 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 $84,000 - Sales commission - $2.40 Depreciation expense 50,000 - Shipping expenses - 1.60 Other expenses 30,000 0.80 f. Budgeted sales price per motor part is $420. 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 2021 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 2021 (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 BBAC501 Management Accounting - Assignment Term 4 2020 Page 4 of 5 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). 2 marks (Maximum of 2 marks will be deducted if the format of presentation is not good.)