Linpet Limited Company

You work as an Accounts Assistant in the management accounts department of Linpet

Ltd., producing one single product for use in the motor trade. The product, known as the
Fuel Miser, for which the business holds the patent, when fitted to the fuel system of
production model cars has the effect of reducing petrol consumption.
Part of the production is sold direct to a local car manufacturer, which fits the Fuel Miser as
an optional extra to several of its models, and the rest of the production is sold through
various retail outlets, garages, and so on.
Linpet assemble the Fuel Miser, but all three components are manudactured by local
enginerring businesses. The three components are codenamed A, B and C, One Fuel
Miser consist of one of each component.
Your work schedule includes analysing and helping to prepare cost information for your
Manager.

BACKGROUND:

The planned sales for the first seven months of the forthcoming accounting period, by
channels of distribution and in term of Fuel Miser units, are as follow:

Jan Feb Mar Apr May June July

Manufacturers 4000 4000 4500 4500 4500 4500 4500
Retail, and so on 2000 2700 3200 3000 2700 2500 2400

The following information is available:

1. There will be inventories of finished units at 1 January of 7000 Fuel Misers.
2. The inventories of raw materials at 1 January will be:
A 10000 units
B 16500 units
C 7200 units
3. The selling price of Fuel Misers is to be $10 each to the motor manufacturer and
$12 each to retail outlets.
4. The maximum production capacity of the business is 7000 units a month. There is
no possibility of increasing this output.
5. Assembly of each Fuel Miser will take 10 minutes of direct labour. Direct labour is
paid at the rate of $7.2 an hour during the month of production.
6. The components are each expected to cost the following:
A $2.5
B $1.3
C $0.8
7. Indirect costs are to be paid at regular rate of $32000 each month
8. The cash at bank at 1 January will be $2620
The planned sales volumes must be met and the business intends to pursue the
following policies for as many months as possible, consistent with meeting the sales
targets:
TASKS:

1. Prepare the following portions of the operating master budget, by monthly for the six
months of January to June inclusive:
a) Sales budget
b) Finish inventories budget (valued at direct cost)
c) Raw materials inventories budget (one budget for each components)
d) Production budget (direct costs only)
e) Trade receivables budget
f) Trade payable budget
g) Cash budget

2. Assume that the Linpet Ltd Company sold the actual units as budgeted.
Variance (adverse) Variance (favourable)
Direct material usage A
Direct material price B
Direct Labour efficiency C
Direct Labour rate D
Fixed overhead expenditure E
Fixed overhead capacity F
Fixed overhead efficiency G

Why they are favourable or adverse and their possible causes (raise at least 2 causes)?

3. Calculate and evaluate some budgeted performance indicators relate to cost

centres and profits centres:
a) Cost centres:
- Productivity (with hours served as an input)
b) Profit centres
- Gross profit margin
- Production costs of sales/sales
c) Explain the meaning of each ratios mentioned above
4. This case presented below is separated with the information supplied above.
Assume that, in the different factory of Linpet Ltd. Company, a business places
substantial emphasis on customer satisfaction and, to this end, delivers its product
in special protective containers. These containers have been made in a department
 within the business. Management has recently become concerned that this internal
supply of containers is very expensive. As a result outside suppliers have been
invited to submit tenders for the provision of these containers. A quote of $250000 a
year has been received for a volume that compares with current internal supply.

Calculate the annual cost of manufacturing containers for comparison with the
quote using relevant figures for establishing the cost or benefit of accepting the
quote. Indicate any assumptions or qualifications you wish to make.

Note:

1. This assignment must be your GROUP work

2. Remember to use in-text citations and supply a bibliography.
3. If you are caught plagiarizing, you could have your grade reduced to fail or at worst,
you could be excluded from the course.
Soft skills:

Students are expected to:

1. Practice a work of an Management Accountant in a specific company

2. Know how to build an operating budget
3. Know how to make a comparison between a budget and the actuality in operation in
specific company and know how to analyze the differences.
4. Know how to analyze the information to support the managers to make the
decisions in short term.