Task Description
You have gained a position as vacation student at the accounting firm T&K Solutions.
In your capacity of vacation student you have been asked by the two partners of T&K Solutions to assist them with two operational issues they are debating by providing input and analysis.
Specifically;
A. The partners are undecided on whether to keep or drop their bookkeeping service. To facilitate their decision-making they have requested you recalculate last year's profit and loss statement without the bookkeeping service. The partners have asked that you then send them an email clearly stating whether you think they should keep or drop the service. Draw from your calculations as well as non-financial factors to justify your decision.
B. The partners are in disagreement about the value of budgeting for their firm. While Terry has never spent much time on budgeting, Kerry believes that by introducing a flexible budgeting process they will gain a greater level of control over their firm's revenue and expenditure. They have asked you to prepare a flexible budget for each service unit, calculate variances to actual, and present the results using the graph function in Excel.
C. The partners have also asked you to write a report to help them resolve their divided opinions with regard to budgeting. They require you to draw on your own knowledge, industry articles as well as your analysis from Task B.
The Company: T&K Solutions
T&K Solutions is a boutique accounting firm offering taxation, bookkeeping and advisory services to a broad range of clients across the Brisbane and Gold Coast area. The firm was established by Terry Thompson in 1998 as a small suburban accounting firm where he offered taxation and bookkeeping services to local businesses. Terry soon developed a reputation for his expertise in taxation and his client base grew considerably.
A few years ago Terry recognised a growing need for advisory services from his clients. Since this was not Terry's area of expertise he searched for a partner that could provide this service to his clients. In 2014 he met Kerry Chua who was working in consulting and advisory for one of the Big 4 accounting firms. Terry was impressed with Kerry's skills and enthusiasm and invited her to join him as a partner and head of the advisory service. Together, Terry and Kerry rebranded the firm to T&K Solutions. They invested heavily in advertising to promote their new advisory service and relocated the office from the suburbs to the centre of Brisbane. All of these activities added substantial fixed costs to the business but Kerry was confident their investment would pay off.
Kerry was right. Since rebranding and relocating T&K Solutions have tripled their billable hours by expanding their services to existing clients and attracting new clients. However, despite the success and growth in revenue, Terry remains concerned by the increase in their overheads. Furthermore, the most recent profit and loss statement indicates that the bookkeeping division is losing money.
Kerry is frustrated by the lack of planning and control undertaken by the firm and thinks they would benefit from a more thorough budgeting process using flexible budgeting to identify and manage variations between actual and expected outcomes. However Terry thinks budgeting is a waste of time, and often states that "it's impossible to predict the future so what's the point of trying?"
ASSIGNMENT TASKS:
In your role as vacation student, the partners of T&K Solutions have asked you to review, analyse and comment on three areas of their operations. Each task is described for you below;
TASK A:
Determine whether T&K Solutions should drop or continue the bookkeeping service
a) Refer to the ‘Data Task A' sheet in the accompanying Excel workbook.
You have been provided the most recent Profit and Loss Statement for T&K Solutions that shows the bookkeeping service is losing money.
Using the proforma in ‘Schedule 1', re-calculate the 2017 profit for T&K Solutions without the bookkeeping service. Be careful to take into account all additional information provided in the ‘Data Task A' worksheet.
Enter your results into Blackboard.
b) Write an email to Terry and Kerry stating whether you think they should continue to operate or drop the bookkeeping service. Within your email include reference to your calculations from above as well as any relevant qualitative factors that T&K should consider before deciding whether to continue or drop bookkeeping services.
Your email should be no longer than 300 words.
TASK B:
Assist T&K Solutions with flexible budgeting and variance analysis
a) Using the data provided in the ‘Data Task B' worksheet, complete the flexible budget for T&K Solutions and calculate flexible budget variances using the proforma in ‘Schedule 2'. For each variance, indicate if it is U (unfavourable), F (favourable). Enter your results into Blackboard.
b) Using the graph function in excel and the worksheet ‘Budget Graphs', create two separate graphs to visually display;
i) 2018 actual income compared to flexible budget income and prior year (2017) income for each service
ii) Variance by cost category for the firm as a whole
TASK C:
Help Terry and Kerry resolve their differences over the effectiveness of budgeting:
"Budgeting is a waste of time - our business is growing so fast that it's impossible to predict the future, so what's the point of trying?"
-Discuss whether you agree or disagree with this statement made by Terry. Refer to your analysis completed in Task B to support your arguments.
Important notes for your discussion
1. Provide evidence for your arguments by referring to at least one (and maximum three) article(s) from the literature or professional reports.
You may use the Internet and/or QUT's library database to search for relevant articles. Reports and papers from professional or scientific journals/magazines on the topic will serve this purpose well. Note that textbooks such as Horngren et al. (2014) do not qualify as an article.
2. Use the AREA critical thinking framework document on Blackboard under Lecture 2 to structure your discussion. Your discussion should be no longer than two pages (1.5 line spacing).
Attachment:- Accounting Services.rar