BUSINESS ECONOMICS AND ACCOUNTING MANAGEMENT ACCOUNTING SEMINAR 2 outline solution
Question 1: discussion of
1. costs of delivering services and of running the organisation
2. Price setting
3. Planning & budgeting based on resources ie physical inputs & outputs & unit price data
Data used to predict cash position & need
To plan staffing & ordering of materials
Data used to motivate staff through targets
4. Predictive information on volume, commodity prices, wage rates etc
5. Control of cost
6. Performance data used to evaluate staff & departmental performance: this may affect remuneration.
Question 2. Pelton branch
Current position
260000/ 80 = 3250 units bep
Current profit = 3500 x 80 = £280000 - 260000 = £20000 profit
Option 1
New sp £210
New contribution 210 – 120 = 90
New demand
3500x 90% = 3150
90 x 3150 = 283500 – 260000 = £23500 profit
Bep 260000/90 = 2889 units
Option 2
Cont = 200 – 110 = 90
90 x 3500 = 315000 – 260000 = £55000 profit
Bep 260000/90 = 2889 units
Option 3
New fixed o’heads = 244400
Bep = 244400/80 = 3055 units
Profit 3500 x 80 = 280000 – 244400 = £35600
option 2 gives highest profit & lowest bep so is least risky, subject to the feasibility of wage cut ie effect on staff morale & resignation rates; is such a drop in wage sustainable ; will quality suffer?.
3. Dean & Torvill
Part a.
1.How profitable was the business?
Predicted costs: (2250 x 68) + 52000 = 205000
Predicted revenue 2250 x 98 = 220500
Predicted profit £15,500
But
Actual Loss in quarter 1: (2000 x 98) – 57275 – 84254 - 55000 = -£529
so, what went wrong?
2. Not enough sales?
Total variable cost p.u. = (7 x £4) + (4 x £8) = 28 + 40 = 68
Each unit contributes 98 – 68 = £30 towards fixed overheads
BEP = 55000/30 = 1833 units
Revenue from 1833 units
1833 x £108
£179,634
Variable cost of 1833 units
1833 x £68
£124,644
Fixed overheads
£55,000
Profit/loss
-£10
Even if standard cost is adhered to, current volume is very close to BEP.
3. How good was cost control?
2000 units should have cost
2000 x 28 = £56000 in materials, but did cost £57,275 ie an overspend £1275
2000 x 40 = £80000 in labour, but did cost £84,254 ie an overspend of £4254
What’s caused the overspends? Was too much material & time used?
Was too paid per unit of material & labour?
Variance analysis
Material Price
14500 kg should cost 14500 x £4 = 58000
Did cost 57275
Variance 725F
Material Usage
2000 units should take 2000 x 7 = 14000
Did take 14500
Difference 500 hours @ £4 std cost = 2000A
