Vacastion Care Services
Essay Preview: Vacastion Care Services
Report this essay
Laird Polytechnic Institute (LPI) which is located in Vantreal offers diploma, certificate and apprenticeship programs to the community and its surrounding neighbours. In 2002 LPI’s revenue sources began to change dramatically because of the decision of the federal government to cap operating grants to all post secondary schools. In spite of the cuts LPI is expected to continue increase enrollments and therefore will have to find other ways of increasing its revenue. To offset the financial pressure that the new government policy creates LPI decided to offer Contract Revenue Programs (CRPs). CRPS were contracts between LPI and clients ranging from single businesses to professional associations of employers and various technical associations. Initially LPI saw an increase in revenue but eventually started to experience financial difficulties. The purpose of this case study is to use the course themes and theories to analyze LPI’s financial situation. The course themes are necessary in searching for important and relevant information in relatively complicated situations. The themes also provide a structure for understanding managerial information needs and the demand for accounting information to which management accountants must respond.

Planning and control is important for a company to accomplish its goals and carry out is business strategies. PLI clearly did not identify the short term decisions versus the long term that they were facing. CRP was a long term decision and yet the institute budgeting and operating procedures did no reflect that. Ron Ikuta calculated the variable cost on the instruction time as per contact hour for part-time instructors and $95 per hour for all CRP instructors. However the full time rate was simply a fixed salary of $50000 prorated over 480 contact hours. Ron calculated a cost saving of $44 per hour as section by section, seasonal filled in for full time instructors. This may have been a reasonable measure of the difference in the marginal cost of instruction had only one full-time instructor departed, but the net loss of three instructors turned staffing into a large decision. In the planning stage management accountants should be able to determine what are the relevant costs so that they can make a sound decision whether to take on a new project or make any modification to the current one. LPI did not plan correctly for the CRP programs. CRP was a long term decision and the budgeting and operational procedures did not reflect that. To be effective, both planning and control should consider the company’s internal strength and weaknesses and external environmental factors. While planning has a future orientation and control an evaluating one, they are related. By comparing actual outcomes with what was planned, the institute could evaluates its’ performance years whish would have triggers corrective actions much sooner. I took LPI four years before calling in an independent consultant to investigate and make recommend solutions to the financial problems.

LPI clearly did not identify the costs that were relevant in the decision making of offering the Contract Revenue Programs. Cost behaviour and time frame is also important in the decision making of taking on a new project. It is critical to determine how cost changing with conditions such as reductions or increase in services, expansion or contracting out and modifications to the current programs. Understanding the time frame is important since short term decisions involve only a few categories of cost change. More importantly the short term time frame implies that the total current fixed cost remains the same whether the institute makes the decision of offering the CRPs or not. While reviewing LPIs financial statements the consultant found that CPR profit was calculated as the difference between revenue and direct costs. The direct costs consisted only of the cost of hiring the instructors and purchasing the materials for specific courses. No overhead was included in the calculation of the direct costs. The consultant recommended that and institution-wide overhead charge of 30% of direct cost to be included in CRP profit and pricing calculation. The reason for this is that the administration, clerical support and information technology salaries are clearly fix costs and therefore should not have been included in the direct cost of calculating the profits. The consultant recommendation was implemented immediately. Cost accounting enables the company to analyze

Get Your Essay

Cite this page

Variable Cost And Purpose Of This Case Study. (June 27, 2021). Retrieved from https://www.freeessays.education/variable-cost-and-purpose-of-this-case-study-essay/