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Accounting Assignment: Case Analysis of Clark Casc Logistics plc

Question

Task: You have received the following email from the Chief Executive Officer of Clark Casc Logistics plc, where you are employed as manager of a loading bay, inviting you to the first in a series of budget-setting meetings and asking you to submit a brief report in advance.

We will be holding a first round of budget-setting meetings on Thursday next week. As the manager of the Craiglockhart loading bay at Clark Casc’s Craiglockhart Loading Bay, the expenditure for which you were responsible for the last financial year was as follows.

Last Year

 

Budget £000

Actual £000

Wages and Employers’ National Insurance and Pension Contributions

528

 

531

Equipment Maintenance

76

81

Equipment Depreciation

74

75

Buildings Maintenance

36

32

Buildings Depreciation

56

56

Heating and Lighting

30

30

Goods Refrigeration

14

15

Apportionment of Central Administrative Costs

74

75

Insurance Costs – Apportioned Based on Past Claims

20

22

Other Costs

10

11

Total Expenditure, Tax and Dividends

918

928

This Year

 

Budget Year to Date £000

Actual Year to Date £000

Wages and Employers’ National Insurance and Pension Contributions

268

271

Equipment Maintenance

38

42

Equipment Depreciation

37

37

Buildings Maintenance

18

17

Buildings Depreciation

28

28

Heating and Lighting

16

15

Goods Refrigeration

8

8

Apportionment of Central Administrative Costs

40

42

Insurance Costs – Apportioned Based on Past Claims

10

12

Other Costs

6

6

Total Expenditure, Tax and Dividends

469

478

 

Next Year
The purpose of next week’s meeting is not to rake over the ongoing overspend for this year but we need to plan for next year. We are going to need you to agree a total budget of £882,000 for next year. Mo will update the figure for apportionment of Central Administrative Costs sometime after the meeting but I’m guessing it’ll be based on this year’s actuals, so I suggest you use that. It’s the rest of the costs we need to discuss with you. You will need to take account of the 3% across-the-board wage increase Piotr agreed with the unions last week. That applies evenly across all types of staff in the loading bay.

Please provide a report on accounting assignment in advance of the meeting detailing how you intend to find the necessary savings.

Answer

1. Introduction
The present accounting assignment has undertaken the concept of budgeting. Budgeting is considered a process to create a plan of where the money is spent. The spending plan of money is called the budget. It helps to identify in advance where the company should spend the money. Budgeting balances the expenses with the income. Budgeting is essential because it makes sure what things are essential and where the money should be paid more. Proper budgeting plays a vital role in managing institutions(Scott and Enu-Kwesi 2018). It provides a roadmap for plans and how to achieve the set of goals in the organization. Budgeting is essential because it helps an organization control spending. It allows setting the financial goals of an organization and performing accordingly to achieve the goals. However, it is very easy to set some goals in an organization. A plan is needed to achieve the goals. Budgeting can help to prepare a plan and focus on the defined process to achieve the goals. If the current year's expenditure is more than the previous year, it is assumed that the expenses should be reduced. A proper budgeting plan is needed for adjusting next year's expenditure.

However, with the proper budget, the organization can avoid debts. It allows the organization to run in an organized way. It helps to save money and achieve the set goals in the future for the organization. If an organization does not manage the debts and expenditure, the organization will be disorganized. It affects the reputation of the company in the market. Budgeting helps to organize all spending and expenses in the proper way(Sicilia and Steccolini 2017). It helps to overcome emergencies in the organization.

This report described that Clark Casc Logistics plc had faced a loss of £3.2 million. So, a budget plan should be made in advance to find out the necessary savings in the next year which includes various measures including reduction in cost by removing the redundant staff and tools.

2. Budgeting Approach
Budgeting plays a crucial role in achieving the goals of an organization. It is the primary tool to plan and integrate activities, control expenditure, and allocate funds. It indicates performance against targets. It allows setting strategic plans for setting and achieving aims. Various skills such as listening, negotiation and numerical skills are involved in drawing up a budget. There are also some risks in the budgeting approach (Haugh, Iyengar, and Song 2017). So, to draw up the budget for the next year, the organization's primary goals and objectives should be identified. The main priorities of the organization should not understand without knowing the aims and objectives of the organization. As budgeting is a secondary process, so with clear strategies, a proper budget can be prepared. Vierlboeck (2019) stated that budgeting is mandatory for maximizing the organization's monetary value. Budgeting assists the organization's managers in dealing with its functioning as it represents the financial aspects such as funding and decisions related to investment.

There are various approaches to budgeting, and the governments of the countries also require a budget that states their strategy of expenditure. Aziz& Shah (2021) stated that participatory budgeting is a type of budgeting in which the public decides how money and where the money should be spent. It also has a long history in accounting management (Kenno, Lau& Sainty, 2018). Budgeting is an important topic and is thoroughly utilized in almost every kind of organization.

Not only the organizational goals and objectives but the policies and procedures must also be followed while preparing the budget. The budget maker should establish the timetables and procedures for the development of the account. The approaches such as inflation rates that will affect the budget should be avoided. Here, Clark Casc Logistics plc has faced a loss in the last financial year. So, a budget-setting meeting will be held to overcome the failures of the previous year. For the next year, the company has set a budget of £882,000. The budget will be based on the actual of this year.

However, the employees' wages have been increased to the 3%. Some of the position of the staffs is redundant. So, these positions of the staff can be cut off to reduce the cost of the budget. It is identified that immediately 10% of the staff can be cut and adjustable to the increase of wages. Along with that, at least 10% of equipment has become redundant. Some of them have become old, and some are broken and not working correctly. So, it can be sold or offered to another department. From there, some money might be got to improve the budgeting of the organization.

After investigating the energy suppliers, it is found that the energy supplies charge will be less, which is equal to 5%. The current rate will be less for 5% for the rest of this current year and the first six months of the following year through the alternative energy supplier. So, the organization can adopt new energy suppliers to reduce the annual cost of the organization. However, it can increase the prices by 3% in the year.

The equipment like Dock Shelter or Dock Seals, Loading Ramps, Pallet Trolley, and many other equipment types can be sold to the various departments. It helps to make a practical budget plan. If automation can be introduced in the loading bay, the staff's cost can be reduced(Pan et al. 2020). The automated service can do the works of the team. So, the company can implement automation in the loading bay to reduce the following year's overall cost.

In last year's budget, the cost was high because of increasing energy costs in the organization. In this case, door technology is critical to reducing warehouses' overall costs, loading areas, or storage cellars in the loading bay (Szinai et al. 2020). However, it is identified that the refrigeration system needs to be repaired. Although, it is a simple repair and it has been ordered already. So, 40% of the cost can be reduced from the maintenance cost. It will help in reducing the cost of goods refrigeration. Some underused space is also found at the Craiglockhart depot. It has the excess capacity to work in a small physical area. So, from here, some costs can also be reduced. The automation process uses artificial intelligence and robotics to help improve the warehouses (Bortolini et al. 2017). Not only will it save money from the following year's budget, but it will also keep the time of the workers.

3. Relevant Calculations
This year's actual expense for the wages and Employer's National Insurance and Pension is £271000. However, the organization has decided to increase the employees' wages by 3% in the coming year. Thus the organization would be expected to bear the following cost on the wages of the employees:

Current year’s expense on wages and Employer’s National Insurance and Pension = £542000
3% of the current year’s expense on wages and employer’s insurance and pension contribution = £542000 * 3% = £16260 …. (1)
Therefore, the organization’s budgeted expense on salaries = Current year’s expense (wages) + Increased Cost (Equation1)
= £ (542000 + 16260) = £558260
Here, we are assuming that there is 1000 staff working at the organization. Now, one employee's average salary can be computed by taking the expected expense on the salary for next year.
Number of employees = 1000
10% of the employees = 1000 * 10% = 100
After deducting 10% employees, the required amount t of employees needed for the organization = 1000 – 100 = 900

The expected expense of organization after deducting 10% of the staffs is:
The budgeted expense of 1000 employees after providing 3% increment in salary = £558260 Budgeted expense of 900 staffs for next year = £558260 * (900/1000) = £502434 It is decided that 10% of the organization's equipment is to be sold, which would also reduce the cost of maintenance and bring liquid capital to the organizationthat could be used as a source of investment.

The current years’ expense of equipment maintenance = £84000
But, after the selling of 10% redundant equipment, the expected expense on equipment maintenance = £84000 – (£84000 * 10%) = £84000 - £8400 = £75600
Expected equipment depreciation = Current years’ equipment depreciation – (10% Current
years’ equipment depreciation) = £74000 – (£74000 * 10%) = £74000 - £7400 = £66600

As influenced by Wehner (2018), vehicles used for building maintenance consume energy, and a 5% reduction in the cost would help the organization reduce the cost of maintaining the building.

One months’ expense on energy at the current rates = £ (34000/12) = £2833.33 The budgeted expense on energy for the first six months of the next year = 6[2833.33 – (2833.33 * 5%)]
= 6 (2833.33 - 141.67)
= 6 * 2691.66
= £16149.96 ….. (2)

Expected expense on energy supplies on rest six months with a rise of 3% price = 6[1345.83 + (1345.83*3%)]
= £8317.2294 ….. (3)
Therefore, after adjusting the rise and fall in the energy supplies prices by 3% and 5%, the budgeted expense on building maintenance would be equal to the sum of (2) and (3).

= £ (16149.96 + 8317.2294) = £24467.1894
The current expense incurred by the organization for the refrigeration of the goods = £8000 After the expenditure of £1000, the cost of goods refrigeration would fall by 40%, which is equal to:

= £ [16000 - (16000 * 40%)] = £(16000 – 6400) = £9600
The organization's budgeted cost for the refrigeration of the goods would also include the maintenance cost of £1000. Hence, the budget for next year for goods refrigeration = £ (9600 + 1000) = £10600

As per the observation of Clark Casc Logistics plc's vehicle workshop manager, there are excess spaces that can be used for productive work. It is decided that different vehicles would be bought and used for business expansion to consume the extra spaces in the loading bay as more vehicles can be parked there for loading and unloading. The budgeted cost for buying new vehicles is equal to £8298.811.

4. Proposed Budget
The rate of inflation is not considered in the setting of the budget as it is equal to 0.8% which is quite negligible. Its inclusion in the computation of the budget would lead to a complex budget. Budget is an estimation of the planned of expenditure and hence should not be assumed to be perfect. The total figure of the proposed budget based on the computation in prior section is as follow:

Areas

Budget Year to Date £000

Wages and Employers’ National Insurance and Pension Contributions

502.434

Equipment Maintenance

75.6

Equipment Depreciation

66.6

Buildings Maintenance

24.46719

Buildings Depreciation

56

Heating and Lighting

30

Goods Refrigeration

10.6

Apportionment of Central Administrative Costs

84

Insurance Costs – Apportioned Based on Past Claims

24

Other Costs

8.298811

Total Expenditure, Tax, and Dividends

882

 

5. Conclusion
Budgeting helps in fulfilling the long-term goals and objectives of an organization. A proper budget helps in saving money and keeping track of progress. It also assists the organization in deciding the relevant expense of the organization. Likewise, in the following year's budgeting, the cost of the organization has been reduced by removing the redundant staff and redundant equipment. The cost is further reduced by employing the new supplier of energy. The extra space of the Craiglockhart Loading Bay is used to expand the company's business by acquiring more vehicles. Acquisition of different cars in the organization would help the organization develop trade and thus the revenue. An approach of simple repair has opted for refrigeration of goods, which reduces the cost by 40% of the current year's cost.

The inflation rate for the last 12 months has been 0.8% and is not considered in the budget setting because it increases the complexity. In the budget setting, the Central Administrative Cost is based on the actual of the current year. The setting of the budget is also focused towards increasing the level of profit of the organization. The redundant equipment would help the company reduce the irrelevant cost and increase the saving. Therefore, in this manner, the budget would intend to increases the necessary savings.

6. Recommendations
From the last year and this year's budget plan, some unnecessary areas are identified to cut off in the next year's budget plan. Budgeting helps to understand the objectives of the company. Without a proper budget, an organization cannot run properly. For the next year, the Clark Casc Logistics plc budget has been set for £882,000, and it is based on the actual of this year. The board manager decides the 3% incensement in the wages of the employees. So, some recommendations can be made on the following steps to improve the budget for the next year.

  • The unnecessary costs in the supply management, warehouses, and employees should be reduced to improve the following year's budget.
  • As a manager of a loading bay in the Clark Casc Logistics plc, cutting material cost should be looked for to optimize the resources.
  • The redundant wastages like paper, metal, or leftover cardboard should be recycled to reduce the production costs. Some more ways should be considered to use the waste materials in creating new products.
  • The company should identify the redundant employees or staff to cut off. It will help the organization to reduce the employee cost in the next year's budget.
  • Along with that, the organization has decided a 3% increase in the staff's wages for the following year. So, cutting off the inefficient or unprofessional employees will reduce staff wages for the next year.
  • Automation systems and robotics should be implemented in the loading bay to increase operational efficiency(Paddeu and Parkhurst 2020).
  • The use of artificial intelligence can reduce employee costs as well as reduces time in the operation.
  • Some of the broken equipment or cannot work correctly should be replaced with new equipment for reducing budget cost.
  • In the loading bay operation, energy supply plays an important role. It is increased with the traditional ways of energy suppliers. However, if some alternative energy suppliers can be found, it will decrease the following year's budget cost.
  • The maintenance cost, heating, and lighting cost should be reduced. The refrigeration system should be repaired for better production and good storage.
  • However, the insurance policies of the organization and other financial accounts are the places for saving money. The money is held on insurance through the comparison for the most competitive rate. Then, the insurance provider should be asked to match thequality.
  • The optimal efficiency of the business should be tracked and measured to optimize the use of available assets.
  • A timetable should be planned for the enactment of the budget. It should be adhered to by all the stakeholders (OGAGA 2020). After establishing the timeline for the budget, all the stakeholders should be informed.

All the employees or the staff should be adequately trained and proper policies should be implemented to ensure the employees' time management and efficiency—efficient staff in the workplace helps reduce cost in the various sectors. ?

7. References
Aziz, H., & Shah, N. (2021). Participatory budgeting: Models and approaches. In Pathways Between Social Science and Computational Social Science (pp. 215-236). Springer, Cham.

Retrieved from: https://link.springer.com/chapter/10.1007/978-3-030-54936-7_10

Bortolini, Marco et al. 2017. “Time and Energy Optimal Unit-Load Assignment for Automatic S/R Warehouses.” International Journal of Production Economics 190: 133–45.

Haugh, Martin, Garud Iyengar, and Irene Song. 2017. “A Generalized Risk Budgeting Approach to Portfolio Construction.” Journal of Computational Finance 21(2): 29–60.

Kenno, S. A., Lau, M. C., & Sainty, B. J. (2018). In search of a theory of budgeting: A literature review. Accounting perspectives, 17(4), 507-553. Retrieved from: https://onlinelibrary.wiley.com/doi/abs/10.1111/1911-3838.12186.

OGAGA, Simon. 2020. “TIME FRAME OF BUDGET PASSAGE: EVIDENCE FROM NIGERIAN DATA.” : 122–31.

Paddeu, Daniela, and Graham Parkhurst. 2020. “The Potential for Automation to Transform Urban Deliveries: Drivers, Barriers and Policy Priorities.” Policy Implications of Autonomous Vehicles. Elsevier, The Netherlands: 291–314.

Pan, Wen et al. 2020. “Adopting Off-Site Manufacturing, and Automation and Robotics Technologies in Energy-Efficient Building.” : 1549–54. Scott, George Kojo, and Francis Enu-Kwesi. 2018. “Role of Budgeting Practices in Service Delivery in the Public Sector: A Study of District Assemblies in Ghana.” Human Resource Managentresearch 8(2): 23–33.

Sicilia, Mariafrancesca, and Ileana Steccolini. 2017. “Public Budgeting in Search for an Identity: State of the Art and Future Challenges.” : 906–10. Szinai, Julia K, Colin J R Sheppard, Nikit Abhyankar, and Anand R Gopal. 2020. “Reduced Grid Operating Costs and Renewable Energy Curtailment with Electric Vehicle Charge Management.” Energy Policy 136: 111051.

Vierlboeck, M., Gövert, K., Trauer, J., & Lindemann, U. (2019, July). Budgeting for Agile Product Development. In Proceedings of the Design Society: International Conference on Engineering Design (Vol. 1, No. 1, pp. 2169-2178). Cambridge University Press. Retrieved from: https://www.cambridge.org/core/services/aop-cambridge-core/content/view/937393268A4FA0DE701F37A377D8ECC4/S2220434219002233a.pdf/div-class-title-budgeting-for-agile-product-development-div.pdf.

Wehner, J. (2018). Energy efficiency in logistics: an interactive approach to capacity utilization. Sustainability, 10(6), 1727. Retrieved from: https://www.mdpi.com/2071-1050/10/6/1727 .

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