TELFORD ENGINEERING P$/$L account: $M$\text{'}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 total accounting department costs $\%$ $M$\text{'}000$

Amortisation of non$-$current assets $1080$

Accounting admin costs: materials and variable overheads $20160$

Accounting staff costs$**70560$

$100800$

Accountancy department staff grades and salary cost breakdown $($pre$-$resignations$)$ Number of staff Total salaries: Average salary $($$M$\text{'}000)$ Total salary by grade $($$M$\text{'}000)$

Head of accounting $17070$

Fully qualified $($FQ$)445180$

Part qualified $($PQ$)530150$

Accounting technicians $($T$)820160$

Total staff members: $18560$

ROLES AND GRADES WITHIN THE ACCOUNTING DEPARTMENT TEAM $($POST$-$MEXIT BASED RESIGNATIONS$)$

Function Team Leader Reports

Receivables PQ$($A$)$ Lara Petrov No reports

Payables PQ$($D$)$ John Smith T$3$

Credit Control FQ$($B$)$ Rafael Sanchez T$4$ and T$5$

Payroll T$7$ No reports

Long$-$term asset management FQ$($C$)$ Robert Stone No reports

Treasury and cash management PQ$($C$)$ Philip Russell No reports

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 accountancy function in$-$house with a reduced staff level. Your salary will remain at $$70,000$ as you were recently appointed.

The retained accounting staff post$-$restructure, will be paid at $10\%$ more than their current salaries. To manage their additional responsibilities and to adopt new working practices, but an additional $25\%$ will be added to the total payroll costs $($after pay rises$)$

of the remaining accountancy department staff, due to the need for increased overtime and the costs of hiring temporary workers to cover peak times.

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 $+4$ Accounting Technicians

Option B

Outsourcing

Telford Engineering has identified a global business services partner off$-$shore. The annual cost of outsourcing the accounting function per annum is forecast to be $$292,000.$ The GBS Company will take over the highly systemised and transactional operations

of payables, receivables, payroll and credit control. Long$-$term asset and treasury and cash management will remain in$-$house.

Outsourcing would take place immediately following MEXIT $($in about one year$$s time$)$ and annual outsourcing costs are estimated to remain constant over time. The total cost of making the staff redundant under the outsource option is estimated to be $25\%$

of their current annual salaries. Outsourcing would mean that $40\%$ of the other non$-$staff accounting department costs could be saved each year.

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

Calculate and compare the forecast total accounting costs in the year following MEXIT under the restructured in$-$house option $($A$)$; to assess which option will be most economical for Telford Engineering in the future.

Enter the accountancy department costs for Option A $($to the nearest $M$\text{'}000).$ For your answer only provide the first three numbers and do not include any symbols, for example, $"543".$