Free Accounting Dissertations - Variable Costs Were Highest In Q3 And About Seven Times More Than Those In
Variable costs were highest in Q3 and about seven times more than those in Q1. Total variable costs were 77.9% of total sales. It ranged from 59.3% in Q2 to 90.8% in Q4.
Even though Q3 had highest sales, highest contribution was recorded in Q2. Q2 contribution was £330,277.9, £47,049.7 higher than that in Q3. Contribution was lowest in Q4 at only £48,622.1.
Total annual contribution in the year 2005 was £784,219.2. Q2 and Q3 contributed 42.1% and 36.1% of annual total, i.e., more than three-fourths of annual contribution comes in a period of six months only.
Net profit/(loss) for 2005
Danish Holidays suffered a loss of £287,780.8 in the year 2005. The contribution turned into a net loss due to high fixed costs of £1,072,000 for the year. Danish Holidays would have made net profit only if the contribution was more than the fixed annual costs.
The net loss was 8.1% of annual sales.
Budget for year 2006
Budget for year 2006 uses 2005 profit and loss accounts as a base to start with. Appendix IV shows the assumptions used in preparing budget for the year 2006 and the per person change in different cost elements. The commission paid to travel agents is still assumed to be 5% of the sales price per person. Depreciation is also constant at £164,000 per year.
Increase in inflation will affect wages and sundry costs. We expect inflation to rise by 2.5% in 2006.
Following categories of cost elements are expected to change during the year.
Ferry costs per person are expected to reduce by 2%. Since ferry costs were highest in Q3, the maximum absolute gain in contribution due to lower ferry costs would be observed in Q3. Q3 ferry costs per person would be £1.8 lesser in 2006 than in Q3 of 2005.
Accommodation costs in Danish Kroner are expected to increase by 6% in 2006. Appendix IV shows the expected accommodation prices per person for each quarter in 2006. Accommodation costs in UK Sterling are dependent on Sterling to Danish Kroner conversion rate. We have used 11:1 conversion rate for the year 2006. Per person accommodation costs in Sterling would increase by highest £4.3 in Q3. The rise has been curtailed due to the expected appreciation of Sterling against Danish Kroner. Due to different inflation rates in UK and Denmark, the conversion rate will move to neutralise the effect of inflation rates.
Other administration costs are only expected to increase by 5% from 1st July 2006. Other administration costs would increase by £1 per person for quarters Q3 and Q4.
Salaries are expected to go up at rate equal to inflation rate. Assuming an inflation rate of 2.5%, the total annual salary bill in the year 2006 would be £102,500 an increase of £2,500 over the year 2005.
Sundry costs are also expected to rise by the same rate as inflation. Sundry costs for the year 2006 are expected to be £828,200, an increase of £20,200 over the year 2005.
Dissertations - Free Accounting Dissertations
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