In this report, an attempt is made to identify and analyze the cost that are incurred by the Alpha tennis coaching Academy. The report classifies the cost that are in control of the organization and the cost that are beyond the control of the organization. The aim of this report is to provide recommendation for improvement of control over the controllable costs.
The academy is engaged in examining its current cost structure. The cost structures refers to the cost that the business incurs that can be classified into fixed and variable costs. The cost structure also classifies cost into controllable and uncontrollable costs (Keating, 2014). The controllable costs includes variable costs like raw material, labor, overheads and other costs over which the management has control. There are certain part of fixed costs that are controllable costs. The expenses of the business over which the management has no control is referred to as the uncontrollable costs. The example of uncontrolled cost is insurance cost (Chen & Weikart, 2014).
In this case, the list of expenses that the Alpha tennis company is incurring or expected to incur are listed below:
Bases on the list of above expenses the expenses that are controllable and the expenses that are not controllable can be identified. The court hiring fees are the fixed costs and it is beyond the control of the management of the organization (Agarwalla et al., 2015). The coach hiring fees are also fixed expenses. However, this expense is within the control of the management of the academy. Therefore, the coaching fees are the controllable expenses. The loss of tennis ball occurs during the practice. The expenses due to loss of tennis ball cannot be estimated and totally controlled though it can be minimized by erecting temporary barriers. Therefore, it can be said that the expenses related to loss of tennis ball is not a controllable expenditure. The expenses that is incurred for erecting temporary barriers can be planned and expenses can be incurred according to the budget (Klychova et al., 2014). Therefore, it can be said that it is a controllable expenditure. The expenses related to the tennis equipment and refreshments are the controllable expenditure because they can be planned and controlled by preparing budgets. Based on the above discussion it can be said that the uncontrollable expenses includes court hiring fees and tennis ball loss expenses. The controllable costs includes coaching fees, expense for temporary barrier, equipment expenses and refreshment expenses.
The costs that are within the control of the organization can be controlled and improved so that expenses can be reduced and profitability can be increased. The control over the controllable expenses can be improved by implementing various steps.
Strategies for cutting costs
The control over the expenses can be increased by implementing strategies for cutting of expenses (Foster, 2017). In order to implement cost cutting strategies for controlling expenses the following should be taken into consideration:
Budget
The academy should develop a budget so that it can determine the expenses that it can eliminate. The following should be taken into consideration while preparing the budget:
Comparing Expenses
The academy should compare expenses for reducing the costs. The strategies that should be followed are:
Control over the expenses
The expenses should be controlled by implanting the following strategies.
Therefore, it can be said that the implementation of the above strategies will help to improve control over the controllable expenses.
In this, section of the report an example for controlling the controllable expenses of building temporary barriers is discussed. The first step for controlling the expenses is to prepare the budget. The budgeted cost for preparing the temporary barriers is provided below:
|
Statement showing budget |
|
|
Particulars |
Amount |
|
Material |
$ 12,000.00 |
|
Labor |
$ 10,000.00 |
|
Overhead |
$ 8,000.00 |
|
Total Cost |
$ 30,000.00 |
Table 1: budget
(Source: created by Author)
The budget should be prepared after discussing with various departments. The cost of the supplier, labor and overhead is estimated based on these discussions. The budget is an estimate so it is important to develop a contingency plan. Therefore, budgeted expenditure based on 5% increase and 10% increase is prepared.
|
Statement showing budget |
|||
|
Particulars |
Amount |
5% increase |
10% increase |
|
Material |
$ 12,000.00 |
$ 12,600.00 |
$ 13,200.00 |
|
Labor |
$ 10,000.00 |
$ 10,500.00 |
$ 11,000.00 |
|
Overhead |
$ 8,000.00 |
$ 8,400.00 |
$ 8,800.00 |
|
Total Cost |
$ 30,000.00 |
$ 31,500.00 |
$ 33,000.00 |
Table 2: budget with contingency plan
(Source: created by Author)
The table above shows the original budget and the contingency plan if expense increases by 5% or 10%. The expenses should be regularly monitored so that the expenses can be controlled. The budget expenses should be compared with the actual expenditure so that the variance could be identified and corrective actions can be taken. The table below shows the variances:
|
Statement showing variance analysis |
||||
|
Particulars |
Amount |
Actual |
variance |
|
|
Material |
$ 12,000.00 |
$ 14,000.00 |
$ (2,000.00) |
U |
|
Labor |
$ 10,000.00 |
$ 8,000.00 |
$ 2,000.00 |
F |
|
Overhead |
$ 8,000.00 |
$ 8,000.00 |
$ – |
|
|
Total Cost |
$ 30,000.00 |
$ 30,000.00 |
$ – |
Table 3: Variance Analysis
(Source: Created by Author)
The table above shows the variance analysis. It can be seen that the material variance is unfavorable and labor is favorable.
Conclusion
Based on the above discussion it can be seen that the expenses that are controllable can be controlled by the organization to improve the financial performance. The analysis of the expense will help to improve the controlling of cost.
Reference
Agarwalla, S. K., Barua, S. K., Jacob, J., & Varma, J. R. (2015). Financial literacy among working young in urban India. World Development, 67, 101-109.
Ajzerle, S., Brimble, M., & Freudenberg, B. (2015). A (W) hole in the Financial Budget: Budgeting’s Influence on the Effective Use of Credit Card Debt in Australia.
Chen, G. G., & Weikart, L. A. (2014). Budget tools: Financial methods in the public sector. CQ Press.
Foster, T. A. (2017). Budget Planning, Budget Control, Business Age, and Financial Performance in Small Businesses (Doctoral dissertation, Walden University).
Keating, S. B. (2014). Financial Support and Budget planning for Curriculum Development or Revision. EVALUATION IN NURSING, 169.
Klychova, G. S., Faskhutdinova, ?. S., & Sadrieva, E. R. (2014). Budget efficiency for cost control purposes in management accounting system. Mediterranean journal of social sciences, 5(24), 79.
Kryukova, E. M., Makeeva, D. R., Atamanova, M. A. E., & Gennad’evna, I. (2013). Financial mechanism of housing and utilities infrastructure of Russian Federation. Life Science Journal, 10(4).
Pinheiro, J. D. O. G. (2014). Cash budget versus financial budget: advantages and disadvantages: a case study (Doctoral dissertation).
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