A small private company in a town with 190,000 inhabitants has decided to take advantage of the
Question:
A small private company in a town with 190,000 inhabitants has decided to take advantage of the de-regulation of passenger transport services. It is proposing to operate a bus service on six particular routes where, after carrying out market research, it has been identified that there are opportunities to compete with existing services.
Currently, the company has five 3-ton trucks which are engaged in light road haulage for regular established customers and has two mini-vans which are used as a courier service for fast delivery of letters and lightweight parcels.
The company has its own garage facilities for the repair and maintenance of its vehicles. The offices are located on the first floor above the garage and an upper floor, currently used for the storage of old records, is being cleared for conversion into office accommodation.
At the rear of the garage and offices is a fenced compound where the vehicles are kept overnight. The compound is locked and floodlit during the hours of darkness and a security firm patrols regularly.
A suitably qualified person has been recruited to manage the bus operation and you have been engaged as the accountant for the expanding business. The owner of the company, a former transport manager, looks after selling and control of routing and utilization of the five trucks and two mini-vans. His wife and a full-time bookkeeper undertake all the administrative work. Seven drivers and two garage mechanics are employed.
Cost accounting records kept have been of a rudimentary nature but the financial accounts, prepared at the end of every quarter by the company's auditors, show the business to be very profitable. The owner is conscious that with the expansion, better records will have to be maintained. From the accounts and in conjunction with the auditors, you ascertain that costs for the following expense headings are available:
The newly-engaged passenger transport manager informs you that six minibuses at a total cost of £210,000 are on order. Each bus can seat twenty people and nine people are allowed to stand. The buses will each be operated by one person and the manager is currently interviewing drivers who hold PSV (public service vehicle) driving licences. He indicates that he will need information from you to ascertain the profitability of each route operated.
You are required, bearing in mind the objectives of cost accounting, to:
(a) Draft a form for the ascertainment of operating costs for the vehicles currently owned.
(b) Draft a form suitable for the proposed passenger service to show income and expenditure.
(c) Comment on the allocation and apportionment of overheads now that they have been increased substantially following the recruitment of yourself and the passenger transport manager.
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