Support processes and monitoring finances


Case study 8.1 Reports on Transport Operations

The Northern Lakes Transport Company operates fifteen 5-tonne and twelve mini road haulage trucks, attracting customers in and around the suburbs in which it operates. The company has its own garage to repair vehicles, employs two full-time mechanics, and has a large compound where the vehicles are parked. Its drivers are permanent employees and whenever they are off sick or on holidays replacement drivers are hired from an agency.
The owner of the company, a former general manager of Philip Island Passenger Transport, learns that the state government is planning to deregulate passenger transport services. He plans to sell his trucks to his competitors and provide a passenger transport service for the eastern suburbs. He wants to keep his staff, with whom he has developed a good relationship, and the garage and compound.
The owner plans to operate ten 45-seat buses and twelve 20-seat mini buses. These will be purchased from manufacturers/builders if readily available and if not from second- hand vehicle dealers. The buses will be of various models and ages. The company plans to service ten different routes, using vehicles appropriate to the time of day and competition from other operators.
The owner would like management reports assessing the profitability of each route and each vehicle, and disclosing income from each run (to identify the profitability of different routes at different times of the day).
You are required to design a reporting system indicating the types of reports, their contents and the methods applied to gather information for them.

Case study 9.1 Performance Report

Rafter and Wood Industries established new facilities for its new product, and has been producing this new product during the past financial year. The company has maintained cost records identifying direct materials, direct labour and the overhead costs incurred.
The director of finance, having developed a professional relationship with you during your past projects with the company, invites you to make a critical review of their performance report for the department producing the new product. This performance report compares the actual output with the budgeted output, and shows the variances and the reasons for them.

You perform a thorough job and adjust any figures that appear to be wrong. The adjusted actual quantities and amounts are:

Number of units produced 12 000
Direct material used 281 000 metres at a total cost of $1 010 400
Direct labour 38 200 hours at a total cost of $753 500

You identify the following information from the budget document:

Planned units of production 11 000
Direct material cost per unit of product 23 metres of material at $3.60 per metre
Direct material cost per unit of product 3.25 hours at the rate of $19 per hour

? Show how the performance report for this department would appear.
? Identify the variances and the possible reasons for them.

Case study 5.2 Cricket Bats Division

Solomon Doostkhah, manager of the Cricket Bats Division of the Mideast Manufacturing Company, is furious that the accountants report showed a divisional profit for the past week of $2150, because this is not consistent with the expected profit for the number of bats manufactured. The profit expected was:

Number of bats to be made 300
Transfer price at which the division sold the bats to the stores $19 500
Cost: Material $8 500
Labour $3 500
Overhead (all fixed) $5 000
Profit $2 500

The number of bats actually made for the week was 330, so Solomon expected to make a profit of $2750. However, the profit shown was:
Number of bats to be made 330
Transfer price at which the division sold the bats to the stores $21,450
Cost: Material $9,500
Labour $3,700
Overhead (all fixed) $6,100
Profit $2 150

Solomon storms into the office of Lindy Andanson, the accountant, seeking an explanation.

Help Lindy prepare a report for Solomon, explaining why the actual profit was lower than the expected profit. (Hint you will need to prepare a flexible budget comparing the actual results, to the budgeted results at a level of 330 bats)