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Problem in calculating outsourcing cost

Forums › Ask ACCA Tutor Forums › ACCA Ethics and Professional Skills Module › Problem in calculating outsourcing cost

  • This topic has 59 replies, 39 voices, and was last updated 2 months ago by maith154.
Viewing 25 posts - 1 through 25 (of 60 total)
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  • Author
    Posts
  • April 24, 2020 at 1:03 pm #569155
    sarmadkhalid45
    Participant
    • Topics: 8
    • Replies: 19
    • ☆

    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

    Had done in several ways but got incorrect answer.

    April 24, 2020 at 1:55 pm #569158
    Kim Smith
    Keymaster
    • Topics: 132
    • Replies: 8265
    • ☆☆☆☆☆

    But what is the requirement? Are you looking for just first year impact on profit/cash flows? Or at longer time horizon? Are you required to consider the time value of money?
    The decision to outsource has:
    An annual cost in perpetuity of $292k
    A one-off cost (25% of $x amount) of making staff redundant
    An annual saving (40% of accounting department costs that are not staff costs – because the department is smaller)
    A 20% increase in annual cost for the retained staff (because they have more responsibilities).

    April 24, 2020 at 10:33 pm #569174
    sarmadkhalid45
    Participant
    • Topics: 8
    • Replies: 19
    • ☆

    there are 2 other costs are given in accountancy department..1 is amortisation of non current asset and second is admin costs of material and variable overheads…I have tried to taking 40 of them but still got incorrect ans

    April 27, 2020 at 7:43 am #569319
    Kim Smith
    Keymaster
    • Topics: 132
    • Replies: 8265
    • ☆☆☆☆☆

    Perhaps there is something to indicate that the amortisation of non-current asset should be ignored. If this is a decision-making requirement, amortisation (like depreciation) is not a cash flow and so not a relevant cost/saving and should therefore be ignored.

    April 28, 2020 at 2:24 pm #569428
    sarmadkhalid45
    Participant
    • Topics: 8
    • Replies: 19
    • ☆

    can you please give me a formate toby which i can calculate the outsourcing cost as I have tried even taking 40% of only material and variable overheads..but still got incorrect ans…

    April 28, 2020 at 3:02 pm #569430
    Kim Smith
    Keymaster
    • Topics: 132
    • Replies: 8265
    • ☆☆☆☆☆

    As I said, tutors do not have access to the final assessment – so I do not know what it asks. Perhaps you are entering the answer incorrectly – if answer is required as $000s it would be 40 not 40000 for example. I did not even know that you have to get all Qs correct – I assumed there was 50% pass mark on the final assessment.

    July 18, 2023 at 2:36 pm #688508
    azaramirov
    Participant
    • Topics: 9
    • Replies: 36
    • ☆

    I can not get the rigth answer still. For outsourcing option:
    1. 292K outsourcing
    2. One off cost 140K (staff redundancy)
    3. 40% saving of other costs 240K – 144K cost
    In total it makes 790K cost for next year

    Where is the mistake?

    July 18, 2023 at 4:05 pm #688515
    Kim Smith
    Keymaster
    • Topics: 132
    • Replies: 8265
    • ☆☆☆☆☆

    Have you read the preceding posts? Is the 20% increase not relevant also?

    July 18, 2023 at 4:25 pm #688518
    azaramirov
    Participant
    • Topics: 9
    • Replies: 36
    • ☆

    Dear Kim, thanks for reply. 20% increase will be applied to the 2 Fully Qualified (FQ) Accountants and one Part Qualified (PQ) Accountant only

    July 21, 2023 at 10:04 pm #688701
    semkoua
    Participant
    • Topics: 0
    • Replies: 1
    • ☆

    Hi! As Kim mentioned earlier there are 4 elements of the total accounting cost for Option B:

    – The outsourcing cost: 292
    – Redundancy cost: 25% of the current annual salaries of the redundancy – but here you have to take into account those who plan to leave before Mexit as the company do not have to pay any redundancy cost after them (this information was in the first spreadsheet)
    – Remaining other cost after the saving, so you have to calculate with the 60%, not the 40
    – Cost of the remained staff – here you have to apply the 20% increase only for the retained FQs and PQ as already mentioned and add it to the unchanged salary of the Head of accounting.

    I hope you can calculate it now, my answer was correct and I could pass this quiz.

    July 23, 2023 at 10:11 am #688758
    Fasih
    Participant
    • Topics: 0
    • Replies: 1
    • ☆

    Can you please share the ans?

    July 23, 2023 at 10:42 am #688761
    Kim Smith
    Keymaster
    • Topics: 132
    • Replies: 8265
    • ☆☆☆☆☆

    @Fasih – please consider the ETHICS of your request – there is more than enough information on this thread

    August 23, 2023 at 10:49 am #690512
    Cezar102
    Participant
    • Topics: 0
    • Replies: 1
    • ☆

    Can you please let me know what I did wrong in my calculations? It still shows as wrong when I input 927.

    August 23, 2023 at 10:54 am #690513
    Kim Smith
    Keymaster
    • Topics: 132
    • Replies: 8265
    • ☆☆☆☆☆

    @Cezar102 – please read the “tips” in semkoua’s post above (July 21)

    August 30, 2023 at 3:13 am #690928
    mayowa
    Participant
    • Topics: 0
    • Replies: 5
    • ☆

    I hope you were all able to get the correct answer. To add to Semkoua’s explanations, amortisation has to be included is included in the 60% of other costs. I have just spent over 1 hour doing this question and that was the only part missing

    September 6, 2023 at 11:13 pm #691575
    mozy
    Participant
    • Topics: 0
    • Replies: 3
    • ☆

    Hi guys ,am stuck am not sure where am getting it wrong

    September 7, 2023 at 7:46 am #691603
    Kim Smith
    Keymaster
    • Topics: 132
    • Replies: 8265
    • ☆☆☆☆☆

    @mozy – please read the “tips” in semkoua’s post above (July 21)

    September 7, 2023 at 11:31 am #691631
    mozy
    Participant
    • Topics: 0
    • Replies: 3
    • ☆

    Hello Smith
    I am still getting the wrong figure it been trying over 6 times..

    Am not sure where am missing it.

    September 7, 2023 at 11:42 am #691632
    mozy
    Participant
    • Topics: 0
    • Replies: 3
    • ☆

    Cost of outsourcing 292k
    One of cost (25%*370)140k
    Cost after saving (60%× 240) 144k
    Increase in salaries(120k* 1.2) 144k
    Head of department salary 70k
    Total 790. I don’t where is the mistake?

    September 15, 2023 at 9:51 am #692064
    meghu
    Participant
    • Topics: 0
    • Replies: 1
    • ☆

    hi did u get the answer to it I tried multiple times

    September 15, 2023 at 10:31 am #692065
    Kim Smith
    Keymaster
    • Topics: 132
    • Replies: 8265
    • ☆☆☆☆☆

    I suggest @semkoua July 21, 2023 at 10:04 pm on this thread pretty much spells out the answer

    September 15, 2023 at 4:45 pm #692085
    jeremy1704
    Participant
    • Topics: 0
    • Replies: 1
    • ☆

    For the redundancy cost, is it 25% of 560 = 140k ? Since 560 is it’s annual current salary?

    September 21, 2023 at 9:43 am #692373
    Farlie1995
    Participant
    • Topics: 0
    • Replies: 1
    • ☆

    Hi
    I am also very stuck on this.

    I am getting the answer of 689000

    October 1, 2023 at 1:59 pm #692691
    archigupta002
    Participant
    • Topics: 3
    • Replies: 1
    • ☆

    @semkoua. Can you please explain redundancy cost and retained cost please

    October 14, 2023 at 2:45 pm #693171
    aimiu
    Participant
    • Topics: 0
    • Replies: 1
    • ☆

    Thank you for this reply! I was missing the information that some employees wanted to leave anyway.

    My only additional tip is to consider that “other non-staff accounting department costs” refers to: “Amortisation of non-current assets” and “Accounting admin costs: materials and variable overheads”. You should consider 60% of these costs remain.

    Good luck to everyone! 🙂

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