Coverage:

Chapter $6-$ Operating budgets, cash budget,

Chapter $7-$ Flexible Budgets, Direct$-$Cost Variances, and Management Control,

Chapter $8-$ Flexible Budgets, Overhead Cost Variances, and Management Control, and

Other chapters and prior knowledge in relation to the project case

Project Case Description

SR Energy Pty Lad $($SRE$)$ is a solar PV module manufacturer. It produces a model of solar panel called "Sun Harvest", which is a type of $300$ W power solar panel. SRE sells the solar pancls to the solar power contractors on credit. The company owns a production facility situated at Zhuhai Hi$-$Tech Zone and maximum capacity is $750,000$ units per year. The company delivers the product to its customers through contracted transportation companies. The solar panel production process simply assembles three components into finished goods $($i$.$e$.$ solar panels$).$ The three components are solar cells, metal frames and wired connectors, which are sourced from suppliers locally. The company has signed long$-$term contracts with the suppliers to lock up the components' price throughout the contract period and all purchases are on credit. The lead time normally varies from $1$ to $4$ wecks depending on the location of the suppliers. SRE needs to keep inventories for the components to avoid the risks of production stoppage. Other factory consumables $($indirect materials$/$overheads$)$ are supplied by nearby suppliers and JIT system is used. The consumable suppliers can immediately deliver the goods as the company requires.

SRE has a practice of preparing budget annually. The budgeting is one of the important annual corporate exercises. The annual budget brings benefits to the management in operation and decision making. However, preparation of operating and financial budgets also consumes a large volume of human resources, for instance human resources of various divisions. In the past years, its annual budgeting and budgetary control tasks have been done very well, thanks to an experienced management accountant, Mr$.$ Stephenson, who had worked as management accountant of the company for many years. He recently left the company and migrated to the UK$.$ His replacement is a junior cost accountant, Lily Billy, she is appointed as acting management accountant while the company is seeking new qualified accounting personnel.

$2\backslash$table$[[$Inventory at $31$ December $2024($last year end$)],[$Finished goods,$12,000$ units$],[$Direct materials,$],[-$ Solar cells,$15,000$ sets$],[-$ Metal frame,$12,000$ sts$],[-$ Wired connectors,JIT$]]$

Indirect costs, consisting of manufacturing and non$-$manufacturing overheads, are budgeted for $2025$ as follows:

$\backslash$table$[[$Manufacturing overheads,$\backslash$table$[[$Cost$],[$per unit$]],\backslash$table$[[$Budgcted cost$],[$per year$]],],[-$ Variables,$${24}^{**},$$$11,232,000,],[-$ Fixed,$${9\mathrm{.}6}^{****},4,492\mathrm{.}800,]]$

"Budgeted allocation rate is based on entimated $4$ss$,000$ mints outpat $($i$.$e$.$ capucity level$)$ and each output requires $1\mathrm{.}2$ direct Labour hours. Therefore, variable ovethends allocative rate is $$20$per hour $[$ hours$)]$ and $$24$ overhend is absorted fire each unit $($ie$.5201.$thes$).$

${?}^{****}$ Fised overheal is allocated to the output hased en bodgeted divect hibour hours $(84,492,\frac{800}{561},000=58$ per

$\backslash$table$[[$Non$-$manufacturing overheads,$\backslash$table$[[$Cost$],[$per unit$]],\backslash$table$[[$Budgeted cost$],[$per year$]]],[-$ Variable: Sales commission,$2\mathrm{.}5\%$ on sales,$],[-$ Fixed: Operating expenies,,$$2,400,000$