Question 6

Question 6 – Agricultural Services

John Smithson is the sole proprietor of Agricultural Services, a small firm which provides contracting services to farms and other clients in East Yorkshire.

You are a self-employed accounting assistant and Smithson is one of your clients.

At a recent visit to Agricultural Services you are discussing the budgeted profit statement for year ended 30 June 2000.

The discussion concerns the analysis of fixed and variable costs in the budget, break-even point and the outline forecast for the year ended 30 June 2001.

The budgeted statement for the year ended 30 June 2000 is as follows:

	£
Turnover (work – done)	110550
Less Variable Costs	49725
Contribution	60775
Fixed Costs	40000
Profit / (Loss)	£20775

Outline Forecast for Year Ended June 2001

	£
Turnover (work – done)	145000
Less Variable Costs	65000
Contribution	80000
Fixed Costs	45000
Profit / (Loss)	£35000

This outline forecast assumes a level of 100%.

Questions

1. List those costs which would be in the budget as fixed and those considered to be variable.

(10 marks)

2. Calculate the break-even level in value of turnover for both the existing budget and the outline forecast for 2001.(10 marks)

3. Prepare a statement to show (for the outline forecast year ended June 2001) profit / (loss) at the following levels of activity: 80% 100% 120% (10 marks)