How To Improve The Profitability Of The Cafeteria

Computing room usage during the summer

Computing room usage during the summer

	Amount (£)	Amount (£)
Single room
(60x7x6) Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	2,520.00
(60x7x14x80%)	4,704.00
		7,224.00
Double room (35x7x20)		4,900.00
i) Total sale value of accommodation
Variable cost
Single room (7224×40)	288,960.00
Double room (4900×64)	313,600.00	602,560.00
Fixed cost		396,728.00
Required profit		10,000.00
TOTAL		1,009,288.00

Computation of charges per room

Let assume that;

• S is the price charged for a single room.
• Therefore, the price charged for a double room is 1.6S

7224S + 4900 (1.6S) = 1,009,288

7224S + 7840S = 1,009,288

15064S = 1,009,288

S= 67

Single room rent (S) = £ 67

Double room rent = (67 x 1.6)

= £ 107.20

Therefore, the leisure Centre will have to charge £67 for a single room per day and £107.20 for a double room per day for realizing a profit of £10,000 during the summer.

1. The anticipated total profit for the leisure Centre

	Computation	Amount (£)	Amount (£)
Accommodation			10,000
Sports Centre:	[(7224×2) +(4900x2x2) +(30x7x20x3)]	46,648
Total		15500	31,148
Less: fixed
Sports Shop:
Contribution	[(7224×1)+(4900x2x1)+(30x7x20x1)]	21224
Less: fixed		8250	12974
Cafeteria
Contribution	[(0.7x7224x1)+(0.7x4900x2x1)+(0.7x30x7x20x1)]	14856
Less: fixed		16000	-1144
Profit			52,978

Based on the CVP computation, the leisure Centre will have a cumulative profit of £ 52,978 from the four facilities.

1. Required (Part B)
2. The profitability of each facility

Organisations sometime engage in more than one activity. The contribution volume profit analysis can be used to rank different projects within an organisation in the order of priority during the expected profit. The leisure Centre has three facilities, namely accommodation, Sports Centre, Sports shop, and Cafeteria. The four facilities can be ranked, in the order of priority, as below. 

1. Sports Centre

The Sports Centre has the highest projected profit of £ 31,148. The facility has a contribution of £ 46,648 after deducting variable costs from the sales. The fixed cost for the facility will be £ 15,500 (Bhimani, et al., 2015, p. 46).

1. Sports shop

The Sports shop has the second highest projected profit of £ 12,974. The facility has a contribution of £ 21,224 after deducting variable costs from the sales. The fixed cost for the facility will be £ 8,250.

• Accommodation

The accommodation facility is ranked third in the order of profitability with an expected profit of £ 10,000.

1. Cafeteria

During the summer the Cafeteria facility will operate at a loss. The CVP analysis shows that the facility will incur a loss of £ 1144. The cafeteria will have a contribution margin of £ 14856 and fixed costs of £ 16000. Therefore, Leisure Centre should not operate the Cafeteria facility (CPA Australia, 2012, p. 98).

1. Profitability of the Cafeteria under the new proposal by Miss Chandin
2. Evaluating profitability

Note:

1. The proposal will lead to a reduction of the contribution by 10%. Therefore, with the initial contribution of £1, the new contribution will be £ 0.9.
2. Fixed Costs will increase by additional £ 1,500.
3. The Capacity (customers visiting the cafeteria) will increase by 20%. With the current capacity at 70%, the capacity will be at 90% of the total people visiting the facility.

Computation

	Computation	Amount (£)	Amount (£)
Cafeteria
Contribution
Initial	[(0.7x7224x1)+(0.7x4900x2x1)+(0.7x30x7x20x1)]	14856
Less: 10% reduction	[(0.2x7224x0.9) +(0.2x4900x2x0.9)+(0.2x30x20x0.9)	3172.32	18028.32
Less:
Initial fixed cost		16000
Add: extra fixed cost		1500	17500
Profit			528.32

The Cafeteria Centre will have a profitability of £528.32 under the new proposal by Miss Chandin. Initially the cafeteria would have incurred a loss of £1144. However the cafeteria will realize a profit under the new proposal. The proposal should be accepted based on the profitability analysis.

1. How to improve the profitability of the cafeteria

The profitability of the cafeteria can be controlled through two ways. The management can either improve the sales or reduce the cost incurred to make sales or carry out the two options at the same time.

Sales at the Cafeteria can be increased in several ways. First, expand the cafeteria’s menu. Focusing on a meal oriented menu and providing more options to the customers will increase the sales. Second, encourage customers to buy more meals when they visit the cafeteria by offering discounts to them. Third, provide customer loyalty programs (Taschner & Charifzadeh, 2016, p. 121). For instance, offering periodic rewards to the customers increase loyalty and increased purchases. Fourth, increase the host events held in the cafeteria. Game nights, live music and poetry reading will increase the number of customers visiting the cafeteria during summers. Lastly, the cafeteria should engage in social networking; the internet is considered to be an effective tool for promoting and interact with potential customers.

Computation of charges per room

The management should also focus on reducing or controlling the costs associated with sales. First, food waste contributes contributes to a huge percentage of operating costs. The management should focus on reducing food wastage. Food inventory can be managed using the First In, First Out (FIFO) method or Just In Time method (DRURY, 2013, p. 99). Second, reduce employee turnover. It is approximated that a cafeteria is likely to incur an employee turnover cost of £132000 per annum. Third, the management should set its budget. The budget will allow the management to control its operating within the established expenditure at the start of the financial period. Lastly, the management should consistently take the inventory. Inventory management will help the cafeteria to understand how and in what rates are food used or wasted (Weetman, 2015, p. 77). 

According to Hopwood (2009), “Prevailing approaches to costing certainly ignore many of the indirect consequences of corporate actions on the environment, but this is something that is increasingly being acknowledged”. In reality financial and accounting experts are more interested in developing accounting policies that support wealth maximisation without considering the impact of organisational practices to the environment. However, the impact of business practices to the environment has become an interesting topic. Several accounting systems have been developed to take the impact of organisational activities on the environment. Specifically, the studies focus on how best accounting can be applied in environmental management. Section reviews the findings of five studies that focussed on environmental management accounting (EMA).

According Burritt, et al. (2002), sought to align business activities with the need for environmental management. The author introduced an accounting framework known as the Environmental Management Accounting (EMA) which would help managers with up to date structures to assess and understand the needs for environmental management. The proposed tool is divided into components- monetary environmental management accounting (MEMA) and physical environmental management accounting (PEMA).

According to a study by Hopwood (2009), stakeholders did not concentrate on the critical impact of accounting management systems on the environment. A lot of accounting researches focus more on the financial aspect of the managerial duties. The study recommeded that there was the need to develop environmental management accounting tools that would help managers to address the environmental aspect of business operations.

According to a study by Larrinaga-Gonzalez & Bebbington, J (2001), the organisation does not take environmental accounting seriously. Organisations are not ready to adhere to the environmental demands- they are more interested in advancing their organisational goals and objectives. Interestingly, organisations are ready to change the environmental accounting so as to continue with their business goals without interference from environmental management accounting.

Masanet-Llodra (2006), studied the application of environmental management accounting in the past. The time periods were divided into three categories: 1971?1980; 1981?1990; and 1991?1995. The existing literature during these periods were analysed. According to the study, little had been done for over 25 years to improve the understanding of environmental management accounting. However, during the 1990s, more accounting scholars have been engaged in studies and developed EMA tools to be used by managers.

Lastly, Mathews (1997), studied the development of environmental management accounting. The study examined the discrepancy in applying EMA internally and externally. The findings showed that organisations largely used EMA internally compared to externally. Using Spain as a case study, the study established that there were no EMA rules and procedures in the country.

I agree with the statement by Hopwood (2009) that prevailing approaches to costing certainly ignore many of the indirect consequences of corporate actions on the environment. Organisations are more interested in creating more wealth to the shareholders and increasing their market dominance without caring about how their action affect the environment. The statement is also supported by the literature review whish shows that managers are not ready to adhere to the environmental management policies but instead they change such policies to support their organisational goals and objectives. Such actions show how greedy organisations have become in that they are ready to forego environmental preservation as far as they earn profit.

Conclusions

Based on the five studies, less focus has been paid to the importance of environmental management accounting because of several reasons. First, organisations are more interested in improving financial position without considering the impact of their activities on the environment. Second, there are no environment management accounting systems and tools in place to provide managers with procedures to address management issues. Third, organisations are ready to change environmental policies to fit their objectives rather than changes the organisational policies to adhere to the environmental requirements. However, there has been a lot of progress on the development of EMA systems to govern the treatment of environmental management issues.

References List

Bhimani, A., Horngren, C. T., Datar, S. M. & Raja, M., 2015. Management and Cost Accounting. New Delhi: Pearson Education Limited.

Burritt, R. L., Hahn, T. & Schaltegger, S., 2002. Towards a comprehensive framework for—Links between business actors and environmental management accounting tools. Australian Accounting Review, 12(27), pp. 39-50.

CPA Australia, 2012. Management Accounting. Second edition ed. Sydney: BPP Learning Media Ltd.

DRURY, C. M., 2013. MANAGEMENT AND COST ACCOUNTING. New York: Springer.

Hopwood, A. G., 2009. The economic crisis and accounting: Implications for the research community. Accounting, Organizations andSociety, 34(6-7), pp. 797-802.

Larrinaga-Gonzalez, C. & Bebbington, J, 2001. Accounting change or institutional appropriation?—A case study of the implementation of environmental accounting. Critical perspectives on accounting, 12(3), pp. 269-292.

Masanet-Llodra, M. J., 2006. Environmental management accounting: a case study research on innovative strategy. Journal of Business Ethics, 68(4), pp. 393-408.

Mathews, M. R., 1997. Twenty-five years of social and environmental accounting research: is there a silver jubilee to celebrate?. Accounting, Auditing & Accountability Journal, 10(4), pp. 281-531.

Taschner, A. & Charifzadeh, M., 2016. Management and Cost Accounting. New York: John Wiley & Sons.

Weetman, P., 2015. Financial Accounting: An Introduction. Sydney: Pearson Education.