Costing and Budgeting Assignment: BioTube Ltd. Case Study on VitaTube Pro Financial Planning

Assignment Requirements

This case study involves BioTube Ltd., a company specialising in manufacturing high-quality blood testing tubes. The focus is on applying management accounting concepts to assess and improve BioTube Ltd.’s financial management, particularly in costing, budgeting, and variance analysis.

Assignment task/s to be completed

Assignment Title: Costing and Budgeting at BioTube Ltd.
As an Assistant Accountant of BioTube Ltd., you are required to submit a detailed report covering cost classifications, budget formulation, variance analysis, and recommendations for BioTube Ltd.’s financial management improvements. Please see below for the company’s background information and the suggested report format:

Company’s Background:

BioTube Ltd. is a manufacturing company specialising in producing high-quality blood testing tubes used in medical laboratories. The company is planning a new project to manufacture an advanced blood testing tube model named “VitaTube Pro.” Management needs a detailed budget for effective cost management and optimal resource allocation, emphasising costing, budgeting, and variance analysis.

Scenario:

BioTube Ltd. is preparing for the launch of VitaTube Pro. Using the provided data, demonstrate how BioTube prepares budgets and performs variance analysis using full costing. Additionally, explain activity-based costing (ABC) and discuss how it differs from full costing.

Case Study Data:

VitaTube Pro’s Budgeting and Costing Data:

1. Material Costs:
– Glass Material: £8 per unit, estimated need: 2,000 units.
– Rubber Seal: £0.75 per unit, estimated need: 2,000 units.
– Additive Chemical: £2 per unit, estimated need: 1,800 units.

2. Labour Costs:
– Machine Operator: £25 per hour, estimated hours: 500.
– Quality Control Inspector: £30 per hour, estimated hours: 200.
– Project Supervisor: £40 per hour, estimated hours: 150.

3. Overhead Costs:
– Factory Rent: £6,000 per month.
– Utilities: £300 per month plus £0.50 per production hour (estimated production hours: 850).
– Machinery Depreciation: £3,000 per month.
– Administrative Expenses: £1,500 per month.

4. Actual Costs (Post-Project Launch):
– Glass Material: £17,500.
– Rubber Seal: £1,700.
– Additive Chemical: £4,100.
– Machine Operator: £13,750.
– Quality Control Inspector: £6,600.
– Project Supervisor: £6,300.
– Factory Rent: £6,500 per month.
– Utilities: £1,000 per month.
– Machinery Depreciation: £3,500 per month.
– Administrative Expenses: £2,000 per month.

Report Structure

1. Introduction to Management Accounting and Costing Systems: (400 words)

• What is management accounting? Describe its role in organisations and provide examples.
• What is the difference between management accounting and financial accounting?
• What is Full Costing? Describe its role in management accounting.
• What is activity-based (ABC) costing? Describe its importance in achieving precise cost allocation.
• Example: Provide examples of how full costing and ABC could be applied by BioTube Ltd. for VitaTube Pro.

2. Cost Classification and Behaviour: (250 words)

• Define cost classification explaining the different types of costs (fixed, variable, and semi-variable) and how they behave in relation to changes in business activity levels.
• Example: Provide examples of each type of costs within the context of BioTube Ltd., such as rent, material costs, and utilities.

3. Material, Labour, and Overhead Costs: (300 words)

(a) Material Costs

(i) Define material costs in the context of management accounting.

(ii) Application at BioTube Ltd (Calculation):

Using the data provided, Calculate total material costs for Glass, Rubber Seal, and Additive Chemical.

(b) Labour Costs

(i) Describe labour costs in management accounting, including their classification in Management Accounting.

(ii) Application at BioTube Ltd (Calculation):

Calculate total labour costs for Machine Operator, Quality Control Inspector, and Project Supervisor.

(c) Overhead Costs

(i) Define overhead costs in the context of management accounting and describe their allocation basis under full costing and ABC.

(ii) Application at BioTube Ltd.

Using the data provided, suggest how BioTube Ltd. assigns overhead costs (utilities, depreciation, administrative expenses) to VitaTube Pro. Link these costs clearly to specific activities such as production processes, quality assurance, and administrative tasks.

4. Budgeting and Variances: (400 words)

• Define the budgeting process within the context of management accounting and discuss its influence on organisational performance, including the controls it impacts.
• Application at BioTube Ltd. (Calculation):

Using the provided data, prepare the budget for VitaTube Pro, clearly showing material, labour, and overhead costs in a structured table format. Additionally, conduct a variance analysis in table form to clearly illustrate discrepancies between budgeted and actual figures. Clearly identify and discuss possible reasons for any unfavourable variances. Highlight reasons for unfavourable variances.

5. Conclusions and Recommendations: (150 words)

(a) Summary: Briefly summarise key insights gained from the costing analysis, budget creation, and variance analysis.

(b) Recommendations: Provide strategic recommendations based on the variance analysis findings to enhance BioTube Ltd.’s cost management and budgeting practices.

Answer

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