A Case Study On Activity-Based Costing And Management Accounting Practices

Importance of activity-based costing and management accounting practices

From the above stated situation an important assertion can be bought forward by stating that the tabular format of computations carried out above represents the overhead cost. Additionally, there are indirect costs which offers an assisting support to the procedure of production or alternatively the intent of distributing the cost (Chenhall and Moers 2015). Furthermore, the case study introduces the situation which brings forward that there are several indirect cost which is needed to be cited in the computation of cost but these costs are yet to be recorded. Direct cost refers to those that arises from the manufacturing of goods and service which is delivered (Kamala et al. 2015). In the process of production direct cost forms, the most important factor nevertheless there are certain state of affairs where it is not possible to manufacture goods without incurring any form of related costs (Fullerton, Kennedy and Widener 2014). It is noteworthy to denote that to determine the cost of Lamington, an important consideration must be paid to take into the considerations the direct cost that is associated with the products which is provided below;

1. Direct cost associated with the labour
2. Charges associated with the freight inward
3. Direct costs associated with the materials

The case study evidently puts forward that the HLW has derived revenue from namely two forms of different sources. These sources are revenue that is generated from the annual membership and the revenue from the court in the form of fees (Lavia López and Hiebl 2014). Consequently, it is noticed that greater than 40% percent of the total sum of revenue is generated from the annual membership for the sum of two months. By considering the left over part the revenue that is generated from the court fees is in terms of the annual basis. Along with this the flow of money from the fees derived from court is not even for every month. At the time when the business hits the peak form it is evidently found that the flow of cash from the court fees is higher during that time and the revenue is greater than 45% of the total amount of revenue (Kotas 2014). On the other hand, during the months of May to September an evidence has been noticed that the fees that is collected from the court is less and only cover approximately 15% of the total sum of sales proceeds.

As evident from the HLW application of the new membership plan, it is necessary to assemble about 80% of the total amount of sales revenue within the span of first month of accounting year. (Hopper and Bui 2016) In addition to this, HLW will be capable of obtaining several benefits that is listed below the until the application of new plan is implemented by HLW;

1. On the application of the new plan HLW would be in the position of gaining the advantage of unhindered volume of cash flow from the functional sources from the annual membership (Stede 2016). As evident from the current plan, the club would be under obligation of remaining reliant on the individual program namely the hourly charges that is derived by the court for deriving greater 50% of total amount of revenue.
2. On implementing the new plan HLW would be able to gain benefit as this would facilitate a platform which would enable the club in generating the steady amount of cash flow for every month (Hald and Thrane 2016).
3. With the application of the new plan, HLW will be in the beneficial position because the supervisor of the club will be in the position of gaining more than 80% of the total amount of revenue in the early period of three months in compliance with the new cash flow strategies rather than waiting for the completion of six months (Bromwich and Scapens 2016). Therefore, such kind of benefit would help HLW in preparing the appropriate use of the assembled funds by considering the several different forms of decisions as and when necessary.

Impact of new membership plan on sales revenue

The case study evidently puts forward by stating that there are several such issues which is emphasized and consequently there are specific number of assumptions that is necessarily required to be undertaken in getting the understanding of the effect of new membership plans to increase sales (Shields 2015). There are certain stated assumptions that can be made;

1. It is necessary to make 100% use of court when the business is hitting the peak time
2. Around 60% of the total use of the capacity should be made during the non-peak time
3. It is estimated that around 40% of the use of court should be made when the business hits the lean time (Marshall 2016).

A tabular representation is provided below that helps in providing an understanding of the impact on the cash flow and the amount of sales revenue that is generated from the periodic sales;

The above stated computations provides that an important assertion which can be considered in the present case study. As evident it has been understood that the amount of sales revenue that is generated by the HLW has substantially grown by $2,87,332 unless it is noticed that they commence the strategy of application of the new plan. As a result, this would enable the company to make the better use of court during the business seasons (Williams 2014). This can be done by taking account of the sales revenue stated under the present plan. In addition to this, the circumstantial evidences presented from the case study provides that the above stated calculations it is evident that the usage of new plans, the club would be able to make collection of large proportion of shares for the expected sum of revenue from sales during the month of October (Lanen 2016).

As evident from the above stated case study the revenue that is generated from the case study represents that it is greater in regard to the plans that is made in the previous instances. This primary reason behind this is that a large amount of factors is necessarily required to be considered when decisions are made in the implementation of the new plan (Lorenz 2015). Certain important factors are taken into the considerations on implementing the below listed assumptions,

1. The analysis provides that the fees that is generated from the membership would increase from the application of the new plan since an improved structure of fees is better than the previous structure of fees. As a result of this, it is expected that there may an instances of loss of members after the implementation of the new plan of membership (Chenhall and Moers 2015). Additionally, it is has been found that there are certain students that are not reliant in respect of the finance and may not be able to afford greater charges of fees together with the renewal of the annual membership plans relating to the new structure of fees. In addition to this, after assessing the result of the consequence, it becomes vital to assess the feedback that is derived from the members.
2. On implementing the new plans, the administration would be able to make the collection of overall fees for the beginning period of three months (Velasquez, Suomala and Järvenpää 2015). With the help of this procedure the management would be able to reduce the cost of assembling the sales revenue generated from the court fees together with the planning of the periodic accounting records for the amount of revenue derived. Therefore, it becomes necessary to take account of the cost reductions strategies at the time of assessment.
3. Within the span of six months, the administration expects that the would lose some members (Otley 2016). The management is under the obligation of implementing the new plans or else they would fail to attain the expected volume of revenue.
4. An important assertion regarding the club can be bought forward by stating that the club is under obligation of performing the special campaign as this will enable the club in promoting the new plans (Cooper 2017). In addition to this, the cost that would be incurred at the time of promotion campaigns must be taken into the account at the time of computing the net income together with the cash flow derived from the implementation of the new plans.

Conclusion:

On arriving at the concluding note, the case study provides an explanatory situation that the activity based costing is regarded as the most beneficial method of costing. There are several forms of business information that is needed in the execution of the business activities and the same should be considered at the time of determining the cost of product. A circumstantial evidences suggest from the case study that adequate business information has been complied in determining the cost of every activity. Furthermore, the activity based cost is referred as the business cost that usually take account of both the ill effects and good effects of the cost that is incurred by the business. An important consideration in this regard is that the activity based costing is easy to understand and implement to ascertain the current cost incurred by the business. On a considerable note, the study evidently provides that activity based costing is regarded as the beneficial mode of costing because it helps the management in making informed and correct decisions.

Reference List:

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