HA2011 Management Accounting Assignment Help

HA2011 Management Accounting Assignment Help

HA2011 Management Accounting Assignment Help

Part A: Activity Based Costing.

a.Activity Based costing is basically aimed at calculating the actual costs for completion of an activity. It breaks the whole process into a number of activities, and then allocates cost pertaining to the same. If the unit cost is higher, then activities can be reduced or the allocation can be worked out to decrease the costs. It is beneficial in the sense that it allows the employees to get a clear view of the cost of operations without the segregation of material, labour and overheads. The overall cost needs to be based on the cost drivers of the activity. The following calculation shows information about different activities in Cravings for cakes, and how the cost is allocated to each activity driver. The activity driver is based on the figures of quantities through which it is multiplied and allows the management to understand about the costs of different activities. (Macinati et. al, 2014)

Cost Per Unit of activity driver

Activity

Activity Cost ($)

Activity Driver

Annual Quantity of Activity Driver

Cost Per Unit

 

 

 

 

 

Prepare Annual Accounts

5000

None Available

 

 

Process Receivables

15000

No. of Invoices

5000 Invoices

3.00

Process Payables

25000

No. of Purchase order

2500 Purchase orders

10.00

Program Production

28000

No. of Production Schedules

1000 Schedule

28.00

Process Sales Order

40000

No. of Sales Order

4000 Sales orders

10.00

Dispatch Sales Order

30000

No. of Dispatches

2500 Dispatches

12.00

Develop and test products

60000

Assigned Directly to products

 

 

Load Mixers

14050

No. of Batches

1000 Batches

14.05

Operate Mixers

45900

No. of Kilograms

200000 Kilograms

0.23

Clean Mixers

6900

No. of Trays

1000 Batches

6.90

Move Mixture to Filling

3450

No. of Cakes/Pastries

200000 Kilograms

0.02

Clean Trays

20000

No. of trades

16000 Trays

1.25

Fill Trays

16000

No. of Cakes/Pastries

800000 Cakes Pastries

0.02

Move to Baking

8000

No. of Trays

16000 Trays

0.50

Set Up Ovens

50000

No. of Batches

1000 Batches

50.00

Bake cake/Pastries

130000

No. of Batches

1000 Batches

130.00

Move to Packing

40000

No. of Trays

16000 Trays

2.50

Pack Cakes/Pastries

80000

No. of Cakes/Pastries

800000 Cakes Pastries

0.10

Inspect Pastries

2500

No. of Pastries

50000 Pastries

0.05

The cost per unit of an activity is calculated in the form of different factors where it provides a base for allocating the costs associated with baking process of a cake.

HA2011 Management Accounting Assignment Help

Further, a bill of activities is created below to depict the cost of production of 100000 cakes, and 1000 batches of the cake. This would simply mean that each batch has 100 units in the same. On the basis of activity drivers, the costs are allocated to different activities and included in the unit at the time of deriving the costs of per product. Thereby, the decisions of profit and margins can be taken after the cost is known to the management.

Bill of Activities

Activity Consumed

Annual Quantity of Activity driver

Cost per Driver

Annual Cost ($)

Process Receivables

500 Invoices

3.00

1500

Process Payables

200 Purchase Orders

10.00

2000

Program Production

100 Production Schedules

28.00

2800

Process Sales order

400 Sales Orders

10.00

4000

Load Mixers

100 Batches

14.05

1405

Operate Mixers

30000 Kilograms

0.23

6900

Clean Mixers

100 Batches

6.90

690

Move Mixture to Filling

30000 Kilograms

0.02

600

Clean trays

2000 Trays

1.25

2500

Fill Trays

100000 Cakes

0.02

2000

Move to Baking

2000 Trays

0.50

1000

Set Up Ovens

100 Batches

50.00

5000

Bake cakes/Pastries

100 Batches

130.00

13000

Move to Packing

2000 Trays

2.50

5000

Pack Cake/Pastries

100000 Cakes

0.10

10000

Dispatch Sales order

500 Sales orders

12.00

6000

Develop and Test Product

 

 

600

Total Cost Annually

64995

No. of Batches

1000

Cost Per Batch

65

No. of Units

100000

Cost Per Unit

0.65

The bill of activities is created to get an understanding about the different factors of cost involved in producing cakes in a bulk. The cost has been based on the drivers and further distributed to each activity. The total cost for production is known by segregating the figures in different type and classes. Some of the costs are major to the production i.e. the baking costs and the setting of ovens is the most costly activity amongst all activities.  The activities are lined up and segregated to allow for the suitable allocation of the costs to each activity. It can also be said that the bill of activity includes all the costs pertaining to production. Costs relating to production are included and the other costs related to sales and distribution or marketing strategies is not taken up. These are further included to calculate the net profit from the gross figures of sales. (Macinati et. al, 2014)

b.Other costs to be added to the product cost includes different items which costs the company after the production process is completed. This may include sales promotion and advertisement expenditure. The cost related to production is allocated within the cost. However, such costs which are administrative in nature. For example, hiring an accountant to maintain the books of the company. These activities do not increase revenue but are related to the overall functioning of the business. These have to be adopted so that the business processes can run without any problems. Such costs can be reduced by effective processing of the decisions which are to be taken by keeping into mind a cost reduction approach. There can be some more examples of the costs which are not related to the production but are crucial to determine the actual profits earned by the entities. Some of them are depreciation on machinery, vehicles used for business. Other example is the building which can be rented out in place of a business. The opportunity cost can also be used sometimes to determine the costing for a product. (Macinati et. al, 2014)

Part B – Budgeting

a.The revenue method chosen during the current financial year is based on collecting the receipts upfront and most of the fees in advance so that ample cash is available to the club in off season as well. The receipts are very thin during the off-season and the club is not able to generate sufficient revenue as well. This makes the business operations limited and does not allow the business to flourish in different segments. However, if the club plans its receipts in such a way that it is able to leverage on the different aspects of a sale. It has decided to remove the hourly fees for the courts and collect an annual amount from the customers.(Dekker, 2016) This will allow them to receive cash up front and thereby increasing the revenue in overall aspect. Currently, the setup is such that the club has to collect the receipts from hourly charges and the fees comes in different and smaller parts. However, the receipts are allowing the firm to ensure sustainability through collecting ear (Dekker, 2016) nings in bulk and not breaking up into different parts. If the earnings are segregated into different parts, the revenue falls short of the targets set by the management. Initial reimbursement of membership fees helps the club to take participation in different advertisement campaign which can help promote the club. Pricing in the form of a cartel is expected to provide good results and increase its ability to plan cash receipts.

b.

Calculation of Number of Hours Available for Rent

Season

Period

Court Usage (A)

No. of Hours (B)

Number of Courts ©

Total Hours Rented (A*B*C)

Peak Season

October - April (Prime Time)

95.00%

724

10

6878

Peak Season

October - April (Remaining Time)

55.00%

648

10

3564

Off Season

May-September

30.00%

2172

10

6516

Total

16958

Calculation of Admission Fees under old fee structure

Revenue from Admission Fees

Fees

% Members

Total Number of Members

Admission Fees

Family

45

50%

1000

45000

Students

30

25%

500

15000

Individuals

100

25%

500

50000

Total

2000

110000

Calculation of  Hourly Fees under old fee structure

Revenue from Admission Fees

Fees

No. of Hours Rented

Admission Fees

Prime Time

12

6878

82536

Non Prime Time

8

3564

28512

Off Season

6

6516

39096

Total

150144

    

Total Fees

 

260144

Calculation of Admission Fees under New fee structure

Revenue from Admission Fees

Fees

% Members

Total Number of Members

Admission Fees

Current Member - Family Pay Fees Early

450

15.75%

315

141750

Current Member - Family Pay Fees Late

500

19.25%

385

192500

Individual Member - Pay Fees Early

250

15.75%

315

78750

Individual Member - Pay Fees Late

300

19.25%

385

115500

New Members - Family

250

7.50%

150

37500

New Members - Individuals

150

7.50%

150

22500

Total

1700

588500

The value of fees has substantially increased as a result of the change in the revenue structure of the company. The number of members has reduced as an effect of the percentage change in revenue received by the club. The club has received income pertaining to members on a proportionate basis. The information have been calculated after assuming certain things before the calculation of revenue from different structures. It has been assumed that the percentage range average is the actual percentage of amount received by the club. Percentage has been calculated by taking the average of the lower and upper limit of the club. Further, the information has been considered authentic and no change is done in the existing figures for the calculation. However, the number of members reduce to 1700 as some members are paying fees in the off season as per a promotion offer by the club. Earlier, when the club was receiving income on the bases of hourly rate, it was charged at around $12 in the prime time. This was not sufficient to cover the expenses and the revenue targets of the management. The number of hours available were not sufficient to cover all the members and the revenue intended from the members was not being achieved. After changing the membership fees structure, a huge amount of increase is noticed in the fees amount received by the club and therefore the revenue targets of the club will be met.

C. Key Factors to be considered for evaluation.

Any organisation follows a set of practices and principles which are aimed at deciding the future course of a business. When an organisation wants to change its business revenue model, or any such intricate activity which has a direct impact on the profitability of operations, then the management has to consider various options in respect of the same and ensure that the policies do not have a negative effect on the operations. These are some of the key factors which have to be considered while evaluation a proposal to change business operations and policies:

Resistance to change: whenever there is a proposed change, the ease of implementation shall be figured out in respect of the proposed amendment to processes. The employees as well as customers are sometimes very resistance to change. Since, the prices are being increased, the customers can have a problem with giving a higher price for the intended services.

Effect on Profits:The objective of any business concern is to maximize the profits from its operations to increase the profits, it has to do careful analysis in respect of the same. However, the effect of profits shall never be negative when it is proposed by the management. The potential profit and cash flow from a business setup is the sole concern of any proprietor.

Cash flow:revenue decisions of a company effects the cash flow a company is earning. It can hinder the cash flows if the policies are restrictive and not in accordance with the company objectives. There shall be no restrictions on the cash flow of the company, and it shall be truly noticed that the decisions are not hindering the cash flows earned during the process.

References

1.Bromwich, M. and Scapens, R.W., 2016. Management accounting research: 25 years on. Management Accounting Research, 31, pp.1-9.

2.Dekker, H.C., 2016. On the boundaries between intrafirm and interfirm management accounting research. Management Accounting Research, 31, pp.86-99.

3.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.

4.Macinati, M.S. and Anessi-Pessina, E.U.G.E.N.I.O., 2014. Management accounting use and financial performance in public health-care organisations: Evidence from the Italian National Health Service. Health policy, 117(1), pp.98-111.

5.Messner, M., 2016. Does industry matter? How industry context shapes management accounting practice. Management Accounting Research, 31, pp.103-111.

6.Suomala, P., Lyly-Yrjänäinen, J. and Lukka, K., 2014. Battlefield around interventions: A reflective analysis of conducting interventionist research in management accounting. Management Accounting Research, 25(4), pp.304-314.