Question 4 Bricks Group Ltd is a property management business with 3 divisions The Finance Director is concerned about the performance of West Division and has asked for some financial analysis on the relative performance of this and other divisions within the Group The latest Profit and Loss (P L) account information from the accounting system is as follows CENTRAL EAST WEST DIVISION DIVISION DIVISION TOTAL Sales 500,000 300,000 200,000 1,000,000 Less variable costs (300,000) (160,000) (140,000) (600,000) Contribution 200,000 140,000 60,000 400,000 Less fixed costs Salaries (60,000) (60,000) (40,000) (160,000) Rent and rates (30,000) (12,000) (18,000) (60,000) Light and heat (20,000) (8,000) (12,000) (40,000) Depreciation (6,000) (2,000) (2,000) (10,000) Insurance (6,000) (2,000) (2,000) (10,000) General expenses (30,000) (18,000) (12,000) (60,000) Operating profit 48,000 38,000 (26,000) 60,000 Depreciation relates to fixtures and fittings Further investigation reveals that All of the staff working in West Division would be made redundant if the department was closed One off redundancy costs would be 24,000 Rent and rates are a central overhead allocated to each division If West Division is closed the light and heat expenses for the business as a whole will reduce by 16,000 Fixtures and fittings related to West Division were originally purchased at 70,000 They would be sold for a scrap value of 6,000 if the division were to be closed down Insurance is a central overhead allocated to each division The general expenses related to West Division would be saved if the division were closed If the division were to be closed, the resources saved could be allocated elsewhere in the business to earn a contribution of 6,000 Required Recommend, using relevant costing analysis, whether West Division should be closed down or remains open Consider a long term approach Explain how you have treated each item in your analysis (22 Marks) b) In many situations, it is difficult to quantify all the important elements of a decision in monetary terms Why it is important to recognize qualitative factors when presenting information for decision making Illustrate your arguments using managers decision to outsource rather than buying or producing parts internally (Max word count 300)

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Question 4 Bricks Group Ltd is a property management business with 3 divisions. The Finance Director is concerned about the performance of West Division and

Question 4

Bricks Group Ltd is a property management business with 3 divisions. The Finance Director is concerned about the performance of West Division and has asked for some financial analysis on the relative performance of this and other divisions within the Group.

The latest Profit and Loss (P&L) account information from the accounting system is as follows:

	CENTRAL	EAST	WEST
	DIVISION	DIVISION	DIVISION	TOTAL

Sales	500,000	300,000	200,000	1,000,000
Less: variable costs	(300,000)	(160,000)	(140,000)	(600,000)
Contribution	200,000	140,000	60,000	400,000

Less: fixed costs
Salaries	(60,000)	(60,000)	(40,000)	(160,000)
Rent and rates	(30,000)	(12,000)	(18,000)	(60,000)
Light and heat	(20,000)	(8,000)	(12,000)	(40,000)
Depreciation*	(6,000)	(2,000)	(2,000)	(10,000)
Insurance	(6,000)	(2,000)	(2,000)	(10,000)
General expenses	(30,000)	(18,000)	(12,000)	(60,000)
Operating profit	48,000	38,000	(26,000)	60,000

* Depreciation relates to fixtures and fittings

Further investigation reveals that:

All of the staff working in West Division would be made redundant if the department was closed. One-off redundancy costs would be 24,000.

Rent and rates are a central overhead allocated to each division.

If West Division is closed the light and heat expenses for the business as a whole will reduce by 16,000.

Fixtures and fittings related to West Division were originally purchased at 70,000. They would be sold for a scrap value of 6,000 if the division were to be closed down.
Insurance is a central overhead allocated to each division.

The general expenses related to West Division would be saved if the division were closed.

If the division were to be closed, the resources saved could be allocated elsewhere in the business to earn a contribution of 6,000.

Required:

Recommend, using relevant costing analysis, whether West Division should be closed down or remains open. Consider a long-term approach. Explain how you have treated each item in your analysis.

(22 Marks)

In many situations, it is difficult to quantify all the important elements of a decision in monetary terms

Why it is important to recognize qualitative factors when presenting information for decision making? Illustrate your arguments using managers decision to outsource rather than buying or producing parts internally.

(Max word-count: 300)