By Gill Myers Foundation Certificate Study tips: applying the Foundation Certificate in Accounting to a business scenario (part 4) 28 Feb 2020 This is the final article in this series, where we are exploring some of the trickiest areas at Foundation level. Study tips: Applying the AAT Foundation Certificate to a business scenario series Part 1 Part 2 Part 3 Part 4 We’re working through a business scenario to illustrate how the AAT Foundation Certificate in Accounting can be applied, in practice, to the typical day-to-day tasks of an accounts assistant. Up to now, Zairah has been busy with financial accounting but her challenge today is to write a report, which will explain a change in JDB Supplies’ bonus system to its production department staff. What details must go in the report? Currently production staff work a 35 hour week, are paid £16 per hour and are expected to make 25 units an hour. For any excess production, employees are paid a bonus of 25p per unit. The new system will change the hourly rate to £17 and production works will be expected to make 28 units an hour. For excess production, employees will be paid a bonus of 20p per unit. The working week will stay the same. She has been told that the report must be a formal document which is clearly written, appropriately structured and includes examples. She has been asked specifically to: Describe a bonus and bonus system Explain how bonuses are calculated in both the current and new systems Compare the systems showing the effect on gross wages for a typical employee Signpost employees to the HR Manger if they require further information How should a report be structured? Zairah has therefore researched how a business report is supposed to be structured and found out that it should include sections such as an introduction, findings, conclusion and recommendations. She already knows that it must be free from grammatical and spellings errors so she plans to pay close attention to this as she writes the report and to proof-read it once it is complete. She starts with: Make sure you understand the definitions Before Zariah moves onto the findings section she checks what the difference is between a description and an explanation and finds: Describe – Give the main characteristics, details and qualities of something Explain – Give the purpose or reason for something; describe how and why Zariah can now see why using examples will help with the explanations of how the bonuses are calculated as they will add the extra detail needed to turn a description into an explanation. Here’s what she wrote: The report Findings A bonus is a financial reward paid to an employee over and above their normal wage or salary. A good bonus system will incentivise workers, by paying them a bonus for production in excess of the quantity expected, or the completion of tasks in less time than expected. For example, if workers are expected to produce 10 items per hour but produce 11, they would get a bonus for the extra item produced. Or, if they are expected to produce 10 items per hour but produced them in 50 minutes, they would get a bonus for the 10 minutes saved. JDB Supplies’ currently incentivises its production workers by using a bonus system and will continue to do so under the new system. Currently production workers are paid £16 per hour and are expected to make 25 units an hour. For any excess production, employees are paid a bonus of 25p per unit. The working week is currently 35 hours. The bonus is calculated by comparing actual production with expected production, and applying the bonus rate to any excess units. This is because it’s a system based on excess production rather than time saved. The expected production currently is 35 hours x 25 units = 875 units per week, therefore workers must produce more than 875 units to earn a bonus. For example, if an employee actually produces 1,050 units in the week, then they have made 175 units more than expected. They are therefore paid a bonus for these extra 175 units (175 units x £0.25 = £43.75) Under the new bonus system production workers will be paid £17 per hour and will be expected to make 28 units an hour. For excess production, employees will be paid a bonus of 20p per unit. The working week will be 35 hours. The new system will see expected production change to 35 hours x 28 units = 980 units per week. Now if a worker actually produces 1,050 units in the week, they have made 70 units more than expected. They are therefore paid a bonus for these extra 70 units (70 units x £0.20 = £14.00) An employee’s gross wage, before tax and other deductions, is a combination of their basic wages plus any bonus payments. In the example of an employee producing 1,050 units a week under the two system they would be paid: The differences are: the increased hourly rate the increased in the number of units expected to be produced per hour the reduction in the bonus rate per unit The similarities are: the length of the working week the method of calculating bonus payments The result is an increase in the gross wage of £5.25 for a worker who produces 1,050 units per week. What is left? Zariah has described, explained and compared in her report so far. She now has the conclusions and recommendations sections to write, but she has not been asked to analyse or evaluate the bonus systems, or to make any recommendations so these sections are not really appropriate in this case. Zariah has just been asked to present the information in a clear and appropriately structured way. Reading back over her work so far, she is happy that she has provided what is required apart from the final signposting. Therefore she finishes with: Proofreading Now Zariah has finished the report and is happy with the structure she needs to proof-read it and double check her calculations. Her work must be free from spelling mistakes, grammatically correct with the right punctuation and written in full English, without any slang or inappropriate abbreviations. Her calculations must be accurate. In this case Zariah was not asked to work to a specific number of decimal places but if she had, then she would need to ensure she followed the instructions given. In summary Tips on how to write in a more professional way are available to help you polish your skills, as are professional writing tips for accountants, which includes a great section on common spelling and grammar mistakes. There is also a good e-learning unit on writing skills which clarifies what’s expected when you’re asked to identify, analyse or discuss, for example. Knowing what these verbs mean and the difference between them will help you write reports that provide correct information in the required way. Read more study tips for Foundation level: Tricky Topics Deciphered: Suspense accounts What to expect from Advanced Level AAT Study tips: identifying and correcting errors – part 1 Gill Myers is a self-employed accounts consultant. She has taught AAT qualifications since 2005 and written numerous articles and e-learning resources.