Accounting Qualification

Answers

Technician level

Contributing to the planning and control

of resources (PCR)

December 2010

Section 1

Task 1.1

(a) / £ per year / Divide by / £ per tonne
(i) / Sales price / 8,000,000 / 40,000 / 200.00
(ii) / Delivery charge / 1,600,000 / 40,000 / 40.00
(iii) / Total income / 9,600,000 / 40,000 / 240.00
(iv) / Variable cost / 7,560,000 / 40,000 / 189.00
(v) / Contribution / 2,040,000 / 40,000 / 51.00
(b) / Actual / Proposed
Sales (tonnes) / 40,000 / 52,000
£ / £
Total income per tonne / 240 / 230
Variable cost per tonne / 189 / 189
Contribution per tonne / 51 / 41
Total contribution / 2,040,000 / 2,132,000
(c) / Recommend the price change because the contribution for the year increases.

Task 1.2

Proposal / Proposal
accepted / rejected / Workings
(a) / Coarse salt used / Tonnes / Tonnes
Sold / 52,000 / 40,000
Used / 54,737 / 42,105 / x100/95
(b) / Number of deliveries
Sales tonnes / 52,000 / 40,000
Deliveries / 1,300 / 1,000 / / 40 tonnes
Kilometres / 195,000 / 150,000 / x 150
(c) / Coarse salt purchased / Tonnes / Tonnes
Used / 54,737 / 42,105
+ minimum closing stock / 2,500 / 2,500
- opening stock / 6,095 / 6,095
required to purchase / 51,142 / 38,510
round up / 55,000 / 40,000
(d) / Production labour hours
Number of deliveries / 1,300 / 1,000
hours required / 26,000 / 20,000 / x 20
Staff available / 16 / 12
Basic hours / 25,600 / 19,200 / x 1,600
Overtime hours / 400 / 800
(e) / Number of vehicles
Deliveries / 1,300 / 1,000
Vehicles (round up) / 8 / 6 / / 175
(f) / Operating budget for year to 30 November 2011 (proposal accepted)
Workings
£ / £ per
Income
Salt sales / 52,000 / tonnes / 9,880,000 / 190.00
Delivery charges / 195,000 / kilometres / 1,950,000 / 10.00
Total / 11,830,000
Variable production and delivery costs
Coarse salt / Tonnes / £
Opening stock / 6,095 / 914,000
Purchases (11 shipments) / 55,000 / 8,250,000 / 150.00
61,095 / 9,164,000
Closing stock / 6,358 / 953,700 / 150.00
Used / 54,737 / 8,210,300
Production labour and overhead / Hours / £
Basic / 25,600 / 256,000 / 10.00
Overtime / 400 / 5,000 / 12.50
26,000 / 261,000
Variable overhead / 110,500 / 4.25
371,500
Variable transport costs / £
Fuel and servicing / 195,000 / kilometres / 468,000 / 2.40
Vehicle running / 8 / vehicles / 672,000 / 84,000
1,140,000
Total variable costs / 9,721,800
Contribution / 2,108,200
Fixed overheads
Production / 555,000
Transport / 160,000
Administration and marketing / 270,000
Total / 985,000
Operating profit / 1,123,200
Delivery data
Vehicles / 8
Number of deliveries / 1,300
Average delivery distance / 150 / kilometres
Deliveries per vehicle / 163
(f) / Operating budget for year to 30 November 2011 (proposal rejected)
Workings
£ / £ per
Income
Salt sales / 40,000 / tonnes / 8,000,000 / 200.00
Delivery charges / 150,000 / kilometres / 1,500,000 / 10.00
Total / 9,500,000
Variable production and delivery costs
Coarse salt / Tonnes / £
Opening stock / 6,095 / 914,000
Purchases (8 shipments) / 40,000 / 6,000,000 / 150.00
46,095 / 6,914,000
Closing stock / 3,990 / 598,500 / 150.00
Used / 42,105 / 6,315,500
Production labour and overhead / Hours / £
Basic / 19,200 / 192,000 / 10.00
Overtime / 800 / 10,000 / 12.50
20,000 / 202,000
Variable overhead / 85,000 / 4.25
287,000
Variable transport costs / £
Fuel and servicing / 150,000 / kilometres / 360,000 / 2.40
Vehicle running / 6 / vehicles / 504,000 / 84,000
864,000
Total variable costs / 7,466,500
Contribution / 2,033,500
Fixed overheads
Production / 555,000
Transport / 160,000
Administration and marketing / 270,000
Total / 985,000
Operating profit / 1,048,500
Delivery data
Vehicles / 6
Number of deliveries / 1,000
Average delivery distance / 150 / kilometres
Deliveries per vehicle / 167

Task 1.3

Email

To:

From:

Subject:Operating budget for year ending 30 November 2011

Date:2 December 2010

Jack

I attach a draft budget for the year ending 30 November 2011and, for comparison, the results of the year just ended.

You will see that the draft shows profit increasing by £67,335 (6%) to £1,123,200.

One driver of this improvement is the expected increase in turnover generated by a price reduction of £10 per tonne. I have estimated the benefit of this move at £92,000 (Task 1.1). Labour and material costs increase with the extra tonnage but nearly £1m of our costs are fixed. This means that we benefit from the economies of scale.

We are also anticipating an increase in the number of deliveries per vehicle from 143 to 163, which is near the maximum possible of 175. This improved utilisation has kept the number of vehicles we need down to eight. At last year’s utilisation we would require at least nine.

Each vehicle costs £84,000 per year to run. I suggest we ask the Transport Manager for an assurance that this improvement will be achieved.

Budget Accountant

Task 1.4

Proposal / Proposal change
accepted / rejected
Vehicles / Vehicles
At 30 November 2010 / 7 / 7
Disposals / 2 / 2
5 / 5
Required / 8 / 6
Purchase / 3 / 1
£ / £
Cost at £120,000 / 360,000 / 120,000
Disposals / 20,000 / 20,000
Net cash flow / 340,000 / 100,000

Section 2

Task 2.1

(a) / Budget / Actual
(i) / Deliveries per vehicle / 157 / 143
(ii) / Kilometres per vehicle / 22,500 / 22,858
(iii) / Average km per delivery / 144 / 160
(b)
(i) / Budget per delivery / £
Fuel and consumables / 200
Servicing and repairs / 112
Tolls and parking / 14
(ii) / Budget per vehicle / £
Driver and assistant / 37,500
Meals and accommodation / 4,800
Training and safety / 4,500
Insurances / 2,200
Taxes and licences / 2,800
Depreciation / 30,000
(c) / Vehicles required / 5.714 / Round up 6

Task 2.2

Statement of transport costs for the year to 30 November 2010
Deliveries / 1,000
Flexed Budget / Actual Costs / Variance Fav / (Adv)
Variable costs / £ / £ / £
Fuel and consumables / 200,000 / 236,302 / (36,302)
Servicing and repairs / 112,000 / 133,400 / (21,400)
Tolls and parking / 14,000 / 16,300 / (2,300)
Total / 326,000 / 386,002 / (60,002)
Stepped costs
Driver and assistant wages / 225,000 / 277,020 / (52,020)
Meals and accommodation / 28,800 / 37,100 / (8,300)
Training and safety / 27,000 / 25,050 / 1,950
Insurances / 13,200 / 18,250 / (5,050)
Taxes and licences / 16,800 / 17,111 / (311)
Depreciation / 180,000 / 210,000 / (30,000)
Total / 490,800 / 584,531 / (93,731)
Fixed costs
Administration staff / 49,400 / 49,535 / (135)
Depot overheads / 95,800 / 98,765 / (2,965)
Total / 145,200 / 148,300 / (3,100)
Total transport / 962,000 / 1,118,833 / (156,833)
Kilometres / 144,000 / 160,000
Vehicles / 6 / 7

Task 2.3

Email

To:

From:

Subject:Transport costs for year ended 30 November 2010

Date:2 December 2010

Jane

You asked me to investigate the £176,000 overspend on your budget last year. I have restated your cost report, as attached.

You will see that I have split the report into three sections for three types of cost: variable, stepped and fixed. I have also adjusted your budget to allow for the fact that you completed 1,000 deliveries in the year rather than the anticipated 940. This increases the budget to £962,000 showing that you have overspent by £156,833.

The most significant variances are fuel and consumables; servicing and repairs; driver and assistant wages and depreciation. The budget assumption was that each vehicle could complete 175 deliveries. On this basis you should have needed only 6 vehicles. You have used 7 and the budgeted cost of each vehicle is £81,800.

The variable costs are £60,002 above budget. This will be due partly to increased travel distance as the budget was calculated on 144km per delivery but the actual was 160km. You might expect a variance of around £36,000 because of this.

As you are aware, we are working on the budget for this year. I suggest you need to review the budget assumptions carefully. Can we really achieve 175 deliveries per year from each vehicle? Will the average delivery distance drop to 150 kilometres? Some investigation is also needed into the variable costs to ensure that costs are being controlled and that all delivery distances are being correctly recorded and charged to the customers.

Budget Accountant

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