The Accountancy Teaching Co (AT Co) is a company specialising in the provision of accountancy tuition...
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The Accountancy Teaching Co (AT Co) is a company specialising in the provision of accountancy tuition courses in the private sector. It makes up its accounts to 30 November each year. In the year ending 30 November 20X1, #t held 60% of market share. However, over the last twelve months, the accountancy tuition market in general has faced a 20% decline in demand for accountancy training leading to smaller class sizes on courses. In 20X1 and before, AT Co suffered from an ongoing problem with staff retention, which had a knock-on effect on the quality of service provided to students. Following the completion of developments that have been ongoing for some time. In 2012 the company was able to offer a far-improved service to students. The developments included: A new dedicated 24 hour student helpline. An interactive website providing instant support to students. A new training programme for staff. An electronic student enrolment system. An electronic marking system for the marking of students' progress tests. The costs of marking electronically were expected to be $4 million less in 20X2 than marking on paper. Marking expenditure is always included in cost of sales. Extracts from the management accounts for 20X1 and 20X2 are shown below: 20X1 Turnover Cost of sales Gross profit Indirect expenses: Marketing Property Staff training Interactive website running costs Student helpline running costs Enrolment costs Total indirect expenses Net operating profit $'000 3,291 6,702 1,287 5,032 $'000 72,025 (52,078) 19,947 (16,312) 3,635 $'000 4,678 6,690 3,396 3,270 2,872 960 20X2 $'000 66,028 (42,056) 23,972 (21,866) 2,106 On 1 December 20X1, management asked all 'freelance lecturers' to reduce their fees by at least 10% with Immediate effect (freelance lecturers' are not employees of the company but are used to teach students when there are not enough of AT Co's own lecturers to meet tuition needs). All employees were also told that they would not receive a pay rise for at least one year. Total lecture staff costs (including freelance lecturers) were $41.663 million in 20X1 and were included in cost of sales, as is always the case. Freelance lecturer costs represented 35% of these total lecture staff costs. In 20X2 freelance lecture costs were $12.394 million. No reduction was made to course prices in the year and the mix of trainees studying for the different qualifications remained the same. The same type and number of courses were run in both 20X1 and 20X2 and the percentage of these courses that was run by freelance lecturers as opposed to employed staff also remained the same. Due to the nature of the business, non-financial performance indicators are also used to assess performance, as detailed below. Percentage of students transferring to AT Co from another training provider Number of late enrolments due to staff error Percentage of students passing exams first time Labour turnover Number of student complaints Average number of employees Required 20X1 8% 297 48% 32% 315 1,080 20X2 20% 106 66% 10% 84 1,081 Assess the performance of the business in 20X2 using both financial performance indicators calculated from the above information and the non-financial performance indicators provided. Note. Clearly state any assumptions and show all workings clearly. Your answer should be structured around the following main headings: turnover; cost of sales; gross profit; indirect expenses; net operating profit. However, in discussing each of these areas you should also refer to the non-financial performance Indicators, where relevant. (15 marks) The Accountancy Teaching Co (AT Co) is a company specialising in the provision of accountancy tuition courses in the private sector. It makes up its accounts to 30 November each year. In the year ending 30 November 20X1, #t held 60% of market share. However, over the last twelve months, the accountancy tuition market in general has faced a 20% decline in demand for accountancy training leading to smaller class sizes on courses. In 20X1 and before, AT Co suffered from an ongoing problem with staff retention, which had a knock-on effect on the quality of service provided to students. Following the completion of developments that have been ongoing for some time. In 2012 the company was able to offer a far-improved service to students. The developments included: A new dedicated 24 hour student helpline. An interactive website providing instant support to students. A new training programme for staff. An electronic student enrolment system. An electronic marking system for the marking of students' progress tests. The costs of marking electronically were expected to be $4 million less in 20X2 than marking on paper. Marking expenditure is always included in cost of sales. Extracts from the management accounts for 20X1 and 20X2 are shown below: 20X1 Turnover Cost of sales Gross profit Indirect expenses: Marketing Property Staff training Interactive website running costs Student helpline running costs Enrolment costs Total indirect expenses Net operating profit $'000 3,291 6,702 1,287 5,032 $'000 72,025 (52,078) 19,947 (16,312) 3,635 $'000 4,678 6,690 3,396 3,270 2,872 960 20X2 $'000 66,028 (42,056) 23,972 (21,866) 2,106 On 1 December 20X1, management asked all 'freelance lecturers' to reduce their fees by at least 10% with Immediate effect (freelance lecturers' are not employees of the company but are used to teach students when there are not enough of AT Co's own lecturers to meet tuition needs). All employees were also told that they would not receive a pay rise for at least one year. Total lecture staff costs (including freelance lecturers) were $41.663 million in 20X1 and were included in cost of sales, as is always the case. Freelance lecturer costs represented 35% of these total lecture staff costs. In 20X2 freelance lecture costs were $12.394 million. No reduction was made to course prices in the year and the mix of trainees studying for the different qualifications remained the same. The same type and number of courses were run in both 20X1 and 20X2 and the percentage of these courses that was run by freelance lecturers as opposed to employed staff also remained the same. Due to the nature of the business, non-financial performance indicators are also used to assess performance, as detailed below. Percentage of students transferring to AT Co from another training provider Number of late enrolments due to staff error Percentage of students passing exams first time Labour turnover Number of student complaints Average number of employees Required 20X1 8% 297 48% 32% 315 1,080 20X2 20% 106 66% 10% 84 1,081 Assess the performance of the business in 20X2 using both financial performance indicators calculated from the above information and the non-financial performance indicators provided. Note. Clearly state any assumptions and show all workings clearly. Your answer should be structured around the following main headings: turnover; cost of sales; gross profit; indirect expenses; net operating profit. However, in discussing each of these areas you should also refer to the non-financial performance Indicators, where relevant. (15 marks)
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Related Book For
Advanced Accounting
ISBN: 978-0538480284
11th edition
Authors: Paul M. Fischer, William J. Tayler, Rita H. Cheng
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