Evaluation Of New Fee Structure For HLW: Activity-based Costing Analysis And Impact On Sales Revenue

Activity-based Costing Analysis

Bill for the Activities:

As evident from the above stated table a representation of the overhead cost is demonstrated and there are indirect costs that offers a lending support to the process of productions or alternatively the distribution purpose (Cost 2016). Additionally, there are large number of indirect costs that is required to be cited in the case study however the same has not been incorporated. Direct cost can be defined as those cost which is originates from the production of any goods and service that is provided. Direct cost is regarded as the important factor that is used in the production costs however there are circumstances where the manufacturing of products is not possible without occurring any related costs (Hemmer and Labro 2016). Hence, to compute the product cost of Lamington, it is vital to include the direct costs which is provided below

1. Direct cost of labour  
2. Direct cost of materials
3. Charges of Freight Inward

As evident from the case study, it is observed that HLW derives revenue from two different sources namely the revenue from the yearly membership and revenues from the court fees. As a result of this, more than 40% of the total amount of income is derived from the yearly membership for the period of two months. Taking into the consideration the remaining balance part, it is derived from the court fees for every year based on annual basis. In addition to this, the inflow of cash from the court fees does not remain even each month (Prasad 2014). During the time when the business hits the peak time it is found that the inflow of cash from the court feeds is high and it is greater than 45% of the total revenue. On the other hand, in the months of May to September it is found that amount of fees collected is lower since it covers 15% of the total amount of revenue.

In respect of the HLW implementation of the new membership plan, it becomes vital to collect around 80% of the total sum of revenue inside the first month of the accounting period. Furthermore, HLW will be able to gain numerous benefits which is listed below given that HLW implement the new plan;

1. On applying the new plan HLW will be able to gain the benefit of the unrestricted amount of cash flow from the operational sources as the once in a yearly membership. Taking into the considerations the present plan, the club is required to remain dependent upon the individual programs such as the hourly fees of court for earning the greater than the 50% of total amount of revenue.
2. Applying the new plan would turn out to be beneficial for the HLW in preparation of the platform which would help the club in producing the steady amount of cash flow for each month (Fullerton, Kennedy and Widener 2014).
3. On applying the new plan HLW would be able to gain benefit since the management of club would be able to accumulate the greater than 80% of the total amount of income in the early months in accordance with the new cash flow plans instead of waiting for six completed months. Hence, the benefit would assist in preparing for the correct utilization of the accumulated funds along with taking into the considerations the different financial decisions whenever necessary.

As evident from the case study there are numerous issues that is highlighted and as a result of this there are certain amount of assumptions that is required to be made in gaining an understanding of the impact of new membership plan on the sales (Mohanty 2014). Below listed are some of the assumptions;

1. The usage of court is 100% during the peak business time
2. 60% of the utilization capacity during the non-prime time
3. An approximate of 40% of the court use should be made during the lean business time

Impact on Sales Revenue

The below stated computation that is made in the determination of the impact of current sales by making use of the systematic method by determining the previously stated assumptions

As evident, the club would be to derive the sales revenue in accordance with the new membership plans as stated in the below stated tables;

Revenue from previous membership:

The below stated tabular representations provides the impact on the cash flow and sales revenue based on the periodic sales revenue:

As evident from the computations made in the above stated table, an assertion can be bought forward in this regard is that the sales revenue of the HLW has increased by $2,87,332 given that they begin implementing the new plan in order to gain highest use of court during the particular season. This is done by taking into the considerations the sales revenue under the present plan (Velasquez, Suomala and Järvenpää 2015). Additionally, as evident from the above stated computation that from the use of new plan, the club would be able to make a collection of greater proportion of share for the anticipated amount of revenue from sales in the month of October.

It is vital to understand that the revenue from sales under the new plan is regarded to be higher in respect of the plans made in the earlier instances. The reason for this is that a large number of factors is required to be dealt at the time of applying the new plan (Otley 2016). The below listed factors helps in providing the appropriate justification for the analysis made;

1. As evident that fees from membership that would be derived from the new plan is considered to be greater than the structure of fees that is stated in the previous instances. As a result of this, it is anticipated that there might arise the loss of members following the application of the new membership plan (Cooper 2017). In addition to this, there are some students that are not dependent in terms of finance and might not afford higher amount of fees along with the renewal of the membership plans for the new structure of fees. Moreover, following the assessment of the outcome, it is necessary to analyse the feedback that is obtained from the members.
2. By applying the new plan, the management would be able to collect the overall fees for the starting period of two or three months (Cooper, Ezzamel and Qu 2017). In such manner, management would be able to lessen the cost of assembling the revenues from the court fees along with the preparation of the periodic records for the revenues earned. Hence, it is vital to take into the considerations the costs reductions during the process of evaluation.
3. Inside the tenure of six months, the management anticipates that they might lose few members (Lavia López and Hiebl 2014). The management is required to apply the new plans or else they might fail to achieve the anticipated amount of revenue.  
4. It is noteworthy for the club to perform a special campaign so that it would be able to promote the new plan. Additionally, the cost involved in the promotional campaigns should be considered during the process of computing the net income along with the cash flows generated from the application of the new plans.

Conclusion: 

On a conclusive note following the end of report an assertion can be bought forward by stating that the method of activity based costing is considered to beneficial. The numerous business information required in the operation of business is stated in the report has been appropriately complied. In addition to this, the activity based costing can be defined as those cost of business that generally takes into the considerations the pros and cost of cost occurred. It is noteworthy to denote that the method is easy to understand and analyse the current cost. Considerably, it can be stated from the numerous studies that activity based costing is advantageous since it helps the business owner in arriving at the understanding of making correct decisions.

In the later part of the assignment it is concerned with the analysis of the cash flow since it is used to help the managers in undertaking the decisions regarding the effectiveness of the new plan in respect of the previous plan. Hence, the new plan would be able to generate greater amount of cash for the business in comparison to the previous plan since the plan forms the base of the cash flow analysis.   

References

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