Shane McAlpine has been a pilot and in business for the last 9 years. He trades under the name of East Gippsland Flying School but is still only a Sole Trader in the eyes of the Australian Government Regulatory bodies. (Eg IRS)

The business started on the farm in the leafy outskirts of Bairnsdale, Victoria and has grown (albeit in fits and starts) to a stage were it is now located near the RAAF Base on the outskirts of East Sale in Victoria.

The business supplies a range of pilot training programs but has in the last couple of years specialised in the areas of Advanced Training for Light Aircraft Pilots, Training of Crop Duster Pilots and providing Short Haul flights for local business people in the East Gippsland region.

The business's charges out rates to client's are: $ 200 per hour for Advanced Training;
$ 130 per hour for Crop Duster Training work; and
$ 245 per hour for Short Haul flights.

The structure of the staff is such that they are multi skilled and multi talented i.e. as they are all well qualified they are able to provide advice across each the above three areas of specialisation without needing much external assistance.

There is currently 1 Principal (Shane) and 6 employees as well as a number of part time admin staff employed at this business. Shane spends no time on any Advanced Training type work, about 8 hours per client for Crop Duster Training and 18 hours per client for Short Haul flights. Shane sees about 100 Crop Duster clients per year and about 30 Short Haul type clients per year. The employees do no Crop Duster Training work and concentrate on doing either Advanced Training or Short Haul type work. They each see about 176 Advanced Training clients and on average about 46 Short Haul clients each year.

Staff had noted that they have heard Shane “musing” over the fact that the he felt that he as the Principal was actually working for the employees and not vice versa

As the new Financial Consultant to this firm you need to ascertain the overall viability of the business.

The predecessor had completed Appendices 1 & 2 before a marriage breakdown forced him to leave for London and I have ascertained the following:







1. Budgeting Data

Using 31/12/04 actuals as a base it is expected that the budgets for the year ended 31/12/2005 will reflect the following changes:

a. all variable costs per hour will increase by 10%;
b. no change in fixed costs;
c. all charge out rates to decrease by 10%; and
d. the estimated chargeable hours is expected to increase to 11900 hours with a budgeted target of 5000 hours for Advanced Training, 880 hours for Crop Duster Training and 6020 estimated for Short Haul work.

2. Actual Data


As at the 31/12/05, it was ascertained that the following had actually occurred:

a. no change in variable costs per hour from prior years;
b. most fixed costs increased by 5% from prior years (with the exceptions of depreciation and interest expense);
c. all chargeable hours increased by 5% over the previous year;
d. all charge out rates actually remained the same: and
e. a new aeroplane costing $ 610,000 was purchased on the last day of the financial year.





REQUIRED:

Prepare a business report (including any recommendations) for Shane as to the viability of the East Gippsland Flying School business both in the short term and the long term.

Complete both the budget and actual statement of financial performance and financial position for the year ended 31/12/05

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