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Hello prof Moffat,
I was solving this question when i got stuck mid way in one of the adjustments while i got the rest of the figures correct.
In that could you please tell me how the extra training expense was calculated by them?
The adjustment/note says that the manager was planning to pay all the training staff 50% of the fees one month later than normal.
I included the original forecast figures as well as the new ones (as the question didn’t mention anything about considering extra fees only) … please help 🙂
Regards
I think that you are confusing the cost of the trainers with the training expense.
The original training expense was 1.0 per month. The software upgrade note say that the expense will increase by 0.5 a month for the first two months, and so the revised forecasts show 1.5 for the first two months and 1.0 for the other two months.
The cost of the trainers is separate. The first two quarters do not change, but the last two quarters will be 20% higher. So quarter 3 will be 10 + 20% = 12, and quarter 4 will be 12 + 20% = 14.4.
The delay in payment will not affect the profits (the costs are charged in the quarter they are incurred) and so are not relevant for the revised profits. They will affect the cash flow and so need commenting on, but you are not asked for figures regarding the cash flow.
Don’t be confused by the table showing the incremental effects – they are only there as workings and you do not need to show it that way. What was required was the first table – the revised forecasts. That is what gets the marks (although you should show your workings in (whatever way you want) because you will still get marks for trying to do it correctly even if you final answer is wrong.
Ohh yes!! now i understand the delayed payment note.
I had got the training expense figure correct.
I was more confused as to why 20% was added to the trainer costs as well. because we already add it to the revenue.
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