Over the last few decades, there has been significant increase in management accounting importance to business. Users of financial statements are provided with the financial information of companies with the help of financial accounting tools. Nonetheless, it is not considered relevant effective and relevant in decision making process and evaluation of overall financial performance of organizations. Such issues can be resolved using the application of management accounting. Potentiality of any business can be measured using the management accounting tools and taking managerial decisions (Cooper et al. 2017). Some of the analysis techniques used in the management accounting are techniques of activity based costing, make or buy analysis and relevant cost analysis.
Tools and techniques can be classified under several heads as per the purpose and functions of organization (Suomala et al. 2014). In this particular assignment, two method of management accounting are discussed that incorporates cash flow analysis and cost accounting.
Cost accounting is the technique that is used by organization for determining the process, products and cost associated with any project. It helps in reporting of correct amounts of costs in the financial statements and assist management in controlling, planning and ultimately making decisions. It considers several tools and techniques for the computation of cost of products and services that are rendered by organization. Assessment of input costs help company in capturing cost of production allocation of overhead expenses of any particular product can be done by company using the tools of cost allocations. Activity based cost is the most popular method of costing compared to all other techniques are they are used by companies on wider scale (Granlund and Lukka 2016). With the help of this costing method, this particular costing method helps in accurately allocating the overhead costs and appropriate determination of cost of products. Descriptions of allocation of overhead expenses are done in the first part of assessment and allocation is done as per the benefits derived from the allocation of overhead expenses from several activities.
Cash flow analysis is explained and discussed in the second part of assignment. Business will be able to effective manage the cash flow associated with business and the potentiality of new plan can be effectively measured using this particular technique. Analysis of cash flow of organization helps in examination of outflow and inflow of cash in any business during specific period (Fullerton et al. 2014). Analysis of cash flow starts from staring balance and thereafter an ending balance is generated for all the expenses paid and cash receipts that are used for financial reporting.
Requirement a:
|
Activity |
Activity Cost |
Activity Driver |
Annual Quantity |
Cost per Unit of Activity |
|
Process Receivables |
$15,000 |
No. of Invoices |
5000 |
$3.00 |
|
Process Payables |
$25,000 |
Nos. of Purchase Orders |
2500 |
$10.00 |
|
Program Production |
$28,000 |
Nos. of Production Schedule |
1000 |
$28.00 |
|
Process Sales Order |
$40,000 |
Nos. of Sales Order |
4000 |
$10.00 |
|
Dispatch Sales Order |
$30,000 |
Nos. of Dispatches |
2500 |
$12.00 |
|
Load Mixers |
$14,050 |
Nos. of Batches |
1000 |
$14.05 |
|
Operate Mixers |
$45,900 |
Nos. of Kilograms |
200000 |
$0.23 |
|
Clean Mixers |
$6,900 |
Nos. of Trays |
1000 |
$6.90 |
|
Move mixture to filling |
$3,450 |
Nos. of Cakes/Pastries |
200000 |
$0.02 |
|
Clean Trays |
$20,000 |
Nos. of Trays |
16000 |
$1.25 |
|
Fill Trays |
$16,000 |
No. of Cakes/Patries |
800000 |
$0.02 |
|
Move to baking |
$8,000 |
No. of Trays |
16000 |
$0.50 |
|
Set up Oven |
$50,000 |
No. of Batches |
1000 |
$50.00 |
|
Bake Cake/Pastries |
$1,30,000 |
No. of Batches |
1000 |
$130.00 |
|
Move to Packing |
$40,000 |
No. of Trays |
16000 |
$2.50 |
|
Pack Cake/Pastries |
$80,000 |
No. of Cakes/Patries |
800000 |
$0.10 |
|
Inspect Patries |
$2,500 |
No. of Pastries |
50000 |
$0.05 |
Bill of Activities:
|
Activity Consumed |
Annual Quantity of Activity Driver |
Cost per Unit of Activity |
Total Cost |
|
Process Receivables |
500 |
$3.00 |
$1,500.00 |
|
Process Payables |
200 |
$10.00 |
$2,000.00 |
|
Program Production |
100 |
$28.00 |
$2,800.00 |
|
Process Sales Order |
400 |
$10.00 |
$4,000.00 |
|
Load Mixers |
100 |
$14.05 |
$1,405.00 |
|
Operate Mixers |
30000 |
$0.23 |
$6,885.00 |
|
Clean Mixers |
100 |
$6.90 |
$690.00 |
|
Move mixture to filling |
30000 |
$0.02 |
$517.50 |
|
Clean Trays |
2000 |
$1.25 |
$2,500.00 |
|
Fill Trays |
100000 |
$0.02 |
$2,000.00 |
|
Move to baking |
2000 |
$0.50 |
$1,000.00 |
|
Set up Oven |
100 |
$50.00 |
$5,000.00 |
|
Bake Cake/Pastries |
100 |
$130.00 |
$13,000.00 |
|
Move to Packing |
2000 |
$2.50 |
$5,000.00 |
|
Pack Cake/Pastries |
100000 |
$0.10 |
$10,000.00 |
|
Dispatch Sales Order |
500 |
$12.00 |
$6,000.00 |
|
Develop & Test Product |
$600.00 |
||
|
Total Overhead Cost |
|
|
$64,897.50 |
|
Annual Volume |
100000 |
||
|
Cost per unit for Lamington |
|
|
$0.65 |
All the costs discussed above are referred to as overhead costs, such costs are costs that are incurred indirectly by business, and this helps in supporting the distribution and production process. Nevertheless, an organization can have many associated direct costs that has not been explained and mentioned in the case study provided. Costs are directly attributable manufacturing and production of any goods in the business or for any services rendered are regarded as direct cost. Cost of production incorporates one of the important elements that are overhead cost as business without incurring such costs will not be able to manufacture the goods (Thomas 2016). Therefore, it is essential to take into account costs that are incurred directly for computing the cost of products of Lamington. Some of the direct costs that are incurred by Lamington for the computation of product cost are listed below and they are as follows:
Requirement a:
According to the case study, two sources are used by HLW to earn money and this comprise of court fees and fees generated by annual membership. Within the initial two months of accounting period, annual membership generates almost 40% of total revenue. However, cash generated from court fees in every month was uneven. Fees generated from court fees is higher during the peak season that is from October to April and total fees generated stood at 45% of total revenue amount. However, lower amount of fees generated from the month of May to September and this amount comprise of 15% of total revenue amount.
Implementation of new membership plan during the new accounting period by HLW will help in generation of revenue of almost 80% of total revenue at the initial stage itself. Some of the advantages from the implementation of this plan are as follows:
The given case study does not provide with the clarification of some of the issues. Therefore, for the determination and evaluation of impact of new plan on the revenue generated from sales comes with the below listed assumptions and they are as follows:
Annual Membership Revenue:
|
Particulars |
Weightage |
No. of Members |
Annual Membership Fees |
Total Fees |
|
Total Members |
100% |
2000 |
|
|
|
Individual Members |
25% |
500 |
$45 |
$22,500 |
|
Student Members |
25% |
500 |
$30 |
$15,000 |
|
Family Members |
50% |
1000 |
$100 |
$1,00,000 |
|
Total Membership Fees |
|
|
|
$1,37,500 |
Total Court Fees:
|
Particulars |
Hourly Court fees |
No of Courts |
No. of Days |
Usage % |
Hours |
Total Fees |
|
Peak Season- Prime Time |
8 |
10 |
181 |
100% |
4 |
$57,920 |
|
Peak Season- Non Prime Time |
12 |
10 |
181 |
60% |
8 |
$1,04,256 |
|
Off Season |
6 |
10 |
184 |
40% |
12 |
$52,992 |
|
Total Court Fees |
|
|
|
|
|
$2,15,168 |
Total Sales Revenue Earned:
|
Particulars |
Amount |
Weight age |
|
Membership Fees |
$1,37,500 |
38.99% |
|
Court Fees – Peak Season |
$1,62,176 |
45.99% |
|
Court Fees – Off Season |
$52,992 |
15.03% |
|
Total Fees Collected |
$3,52,668 |
100% |
The expectation of club under new membership plan is to earn sales revenue as depicted in the table below:
Revenue generated from prior Membership:
|
Particulars |
Current Member |
% of Continuation |
% of Active Members |
Annual Fees |
Total Fees |
|
Individual |
500 |
70% |
45% |
250 |
$39,375 |
|
Student |
500 |
70% |
45% |
250 |
$39,375 |
|
Family |
1000 |
70% |
45% |
450 |
$1,41,750 |
|
Total Fees from Early Membership |
|
|
|
|
$2,20,500 |
Revenue generated from General Membership:
|
Particulars |
Current Member |
% of Continuation |
% of General Members |
Annual Fees |
Total Fees |
|
Individual |
500 |
70% |
55% |
250 |
$48,125 |
|
Student |
500 |
70% |
55% |
250 |
$48,125 |
|
Family |
1000 |
70% |
55% |
450 |
$1,73,250 |
|
Total Fees from Normal Membership |
|
|
|
|
$2,69,500 |
Total Sales Revenue Collected:
|
Particulars |
Amount |
Weightage |
|
Membership Collected: |
||
|
August-September |
$2,20,500 |
34.45% |
|
October |
$2,69,500 |
42.11% |
|
March |
$1,50,000 |
23.44% |
|
Total Membership |
$6,40,000 |
100.00% |
Table below provides with the impact of new membership plan on sales revenue that are periodic:
|
Particulars |
Current Plan |
New Plan |
Increase/ (Decrease) |
|
Revenue: |
|||
|
Pre-Received (Aug-Sep) |
$0 |
$2,20,500 |
$2,20,500 |
|
October-April |
$2,99,676 |
$4,19,500 |
$1,19,824 |
|
May-September |
$52,992 |
0 |
-$52,992 |
|
Total Membership |
$3,52,668 |
$6,40,000 |
$2,87,332 |
As depicted from the table above that implementation of new plan will help in increasing sales revenue by amount $287,332. It can also be stated from the computation of above figures that lion shares of expected sales can be generated by club within the month of October.
New membership plan of chub generated higher sales revenue compared to existing plan. Some of the factors assisting in plan evaluation are listed below:
Conclusion
From the above discussion, it can be inferred that activity based costing provide with benefits in terms of activities and operations of business of Lamington. Cause and effect of business can be easily established with the implementation of this particular costing method. Users will be able to analyze and understand the costing techniques in better way as it reveals the accuracy of costs. It can be concluded that business owner are able to derive benefits in terms of better and informed decision making. Furthermore, organization has been able to arrive at better decisions with the analysis of cash flow statements. Implementation of new membership plan would provide business with several benefits and is capable of generating more business.
References and Bibliography list:
Cooper, D.J., Ezzamel, M. and Qu, S.Q., 2017. Popularizing a management accounting idea: The case of the balanced scorecard. Contemporary Accounting Research.
Fullerton, R.R., Kennedy, F.A. and Widener, S.K., 2014. Lean manufacturing and firm performance: The incremental contribution of lean management accounting practices. Journal of Operations Management, 32(7), pp.414-428.
Gholami, S., Hariri, M. and Akbari, P., 2014. Innervation and moan review process, from the perspective of law, and knowledge of management accounting.
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Horton, K.E. and de Araujo Wanderley, C., 2016. Identity conflict and the paradox of embedded agency in the management accounting profession: Adding a new piece to the theoretical jigsaw. Management Accounting Research.
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