TELFORD ENGINEERING P/L account: $M'000

Sales 8,000
Costs Production costs
Materials -2,000
Staff costs -1,500
Overheads -300
Distribution costs
Staff costs -600
Other costs -160
Gen Admin costs
Staff costs -900
Other costs -200
Accounting costs -800
Finance costs -100

Net profit 1,440

NOTE 1
Breakdown of % $M'000
Amortisation o 10 80
Accounting adm 20 160
Accounting sta 70 560
100 800

Accountancy de Number of staff ($M'000)e ($M'000)

Head of accoun 1 70 70
Fully qualified 4 45 180
Part qualified 5 30 150
Accounting tec 8 20 160
Total staff me 18 Total salaries: 560

Option A
Retaining accountancy staff in-house, but operating with the reduced workforce
Staff members who resign leading up to MEXIT are not to be replaced, and the company will continue to operate the a
The retained accounting staff post-restructure, will be paid at 10% more than their current salaries. To manage their ad
of the remaining accountancy department staff, due to the need for increased overtime and the costs of hiring tempora
Note: The remaining staff left under the restructure Option, after the earlier redundancies, will be as follows:
Head of accounting (unchanged salary) + 2 Fully Qualified (FQ) Accountants + 3 Part Qualified (PQ) Accountants + 4 A

Option B
Outsourcing
Telford Engineering has identified a global business services partner off-shore. The annual cost of outsourcing the acc
of payables, receivables, payroll and credit control. Long-term asset and treasury and cash management will rem
Outsourcing would take place immediately following MEXIT (in about one year’s time) and annual outsourcing costs ar
of their current annual salaries. Outsourcing would mean that 40% of the other non-staff accounting department
The retained skeleton staff, post-outsourcing, will be paid at 20% more than their current salaries.

Note: The remaining staff to be retained under the Outsource Option will be as follows:
Head of Accounting (unchanged salary) + 2 Fully Qualified (FQ) Accountants and one Part Qualified (PQ) Accountant
ed workforce
continue to operate the accountancy function in-house with a reduced staff level. Your salary will remain at $70,000 as you were re
aries. To manage their additional responsibilities and to adopt new working practices, but an additional 25% will be added to the to
e costs of hiring temporary workers to cover peak times.
 be as follows:
ed (PQ) Accountants + 4 Accounting Technicians

ost of outsourcing the accounting function per annum is forecast to be $292,000. The GBS Company will take over the highly syste
sh management will remain in-house.
nual outsourcing costs are estimated to remain constant over time. The total cost of making the staff redundant under the outsourc
accounting department costs could be saved each year.

ualified (PQ) Accountant

at $70,000 as you were recently appointed.
5% will be added to the total payroll costs (after pay rises)
take over the highly systemised and transactional operations

undant under the outsource option is estimated to be 25%