Question

question

whether you think they should keep or drop the service bookkeeping, Draw from your calculation as well as non-financial factors to justify your decision ? 250 words?

DATA FOR TASK A:	2017 Profit and Loss Statement for T&K Solutions:	?	?	?	?
?	Taxation	Bookkeeping	Advisory	Total	?
?	$	$	$	$	?
Revenue	800,000	195,000	950,000	1,945,000	?
Less:  Costs	?	?	?	?	?
- Partner Salary	75,000	75,000	150,000	300,000	?
- Professional Staff Costs	320,000	120,000	400,000	840,000	?
- Office Staff	45,000	45,000	45,000	135,000	?
- Client travel costs	25,000	5,000	52,000	82,000	?
- IT Support	5,000	3,000	9,000	17,000	?
- Printing & Stationary	8,000	3,200	11,000	22,200	?
- Advertising	8,000	8,000	8,000	24,000	?
- Rent	16,000	16,000	16,000	48,000	?
- Utilities	8,000	8,000	8,000	24,000	?
- Depreciation	5,000	5,000	5,000	15,000	?
- Bad debts	2,000	3,000	-	5,000	?
Net Profit	283,000	-96,200	246,000	432,800	?
ADDITIONAL INFORMATION:	?	?	?	?	?
Partner Wages	Terry and Kerry are both paid a salary of $150k pa. Terry's salary is spread between Tax & Bookkeeping. Kerry's salary is charged to Advisory
Professional Staff	Professional Staff are paid $80k per full-time equivelent (FTE). Tax has 4 professional staff , Advisory has 5 professional staff and Bookkeeping has 3 part time staff who each work  0.5 of a FTE. If bookeeping was to close, these staff would no longer be required.
Office Support Staff	The firm has 3 office support staff each paid $45k per year. Currently their costs are spread evenly between the 3 service units. It is expected that if bookkeeping was to close there would be no change to the support staff.
Client Travel Costs	Client travel costs vary depending on the service and client needs.
IT support	IT support costs vary with the associated service unit.
Printing & Stationary	Printing and stationary costs vary depending on the client needs and service performed.
Advertising	Advertising costs are alloacted evenly across the firm. However, if bookkeeping was to close it is expected advertising costs would only reduce by 10% in total.
Rent & Utilities	Rent and Utilities are currently spread evenly across the 3 service units.  If bookkeeping was to close the additional floor space would be absorbed by the remaining services and there would be no savings in utilitity costs.
Deprectiation	Depreciation relates to shared office equipment and is charged evenly across each service unit. If bookkeeping was to close all existing equipment would remain.
Bad debts	Bad debts relate specifically to clients within that service unit.

TASK A SCHEDULE 1:	2017 Profit & Loss - If T&K Drop Bookkeeping	?	?	?
?	Taxation	Bookkeeping	Business Advisory	Total
?	$'000	$'000	$'000	$'000
Revenue	800,000	-	950,000	?
Less:  Costs	?	?	?	?
- Partner Salary	75,000	75,000	150,000	300,000
- Professional Staff Costs	320,000	-	400,000	720,000
- Office Staff	45,000	45,000	45,000	135,000
- Client travel costs	25,000	-	52,000	77,000
- IT Support	5,000	-	9,000	14,000
- Printing & Stationary	8,000	-	11,000	19,000
- Advertising	7,200	7,200	7,200	21,600
- Rent	16,000	16,000	16,000	48,000
- Utilities	8,000	8,000	8,000	24,000
- Depreciation	5,000	5,000	5,000	15,000
- Bad debts	2,000	-	-	2,000
?	?	?	?	?
Net Profit	$283,800.0	-$156,200.0	$246,800.0	$374,400.0
?	?	?	net profit of last year	$432,800.0
If bookkeeping was closed, the net change in profit for T&K solutions would be :				-$58,400

Answer 1

Even if book keeping line is closed, the certain cost that are fixed in nature that will be incurred in either case as they are not related with the book keeping function. But if the firm decides to drop this particular unit it will have to lose the revenue collection from book keeping services. However, at the same time there are few costs that are variable in nature and hence can be avoided if the book keeping service is terminated. Also, the shutting of book keeping service department will also reduce the overall advertisement cost of the firm.

Presently, the firm is incurring the total advertising cost of $ 24000 which can be reduced by $ 2400 (24000*10%). This will result in net advertising cost of $ 7200 each for the taxation and advisory units. The net profit of these two units will, therefore, increase by $ 800 each with the closure of book keeping unit. But at the same time the overall profitability will go down by $ 58400.

Before dropping Book Keeping	Taxation	Book-Keeping	Advisory	Total
Revenue	800000	195000	950000	1945000
Cost	517000	291200	704000	1512200
Net Profit	283000	-96200	246000	432800

After dropping Book Keeping	Taxation	Book-Keeping	Advisory	Total
Revenue	800000		950000	1945000
Cost	516200	156200	703200	1570600
Net Profit	283800	-156200	246800	374400

Non financial factors:

The book keeping is the basic function which generally enhances the client base for the company as advisory and taxation functions are the secondary activities that clients requires. So if book keeping is closed the firm may lose some of its clients.

Competitive advantage will be lost in the market.

Conclusion: Therefore, it is not feasible to close down the bookkeeping unit.