MANAGEMENT ACCOUNTING: HAWTHORN
LEISURE WORKS (HLW) AND US BRIGHT

 

Table of Contents

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Introduction. 2
Assignment A: Calculation of bill of activities and cost per
unit for US Bright 2
Assignment B: Close analysis of budgetary elements of HLW… 6
Conclusion. 10
References. 11
 

 

 

Introduction

In the era of global competitive domain,
the quest for increasing the efficiency by maintaining transparency has become
the vital element for smoothing the decision making process. In the complex
industrial juncture, management accounting acts as the guideline promoting the
managers in adopting innovative steps for satisfying the customers. Performance
measurement and involvement of active collaboration help in maximising profits
thereby introducing brand popular among the customers. In the assignment, cost
per unit and bill of activities preparation for US Bright has been reviewed.
Relevant budgetary decisions related to effective decision making for HLW has
also been focused on this assignment. 

Assignment A: Calculation of bill
of activities and cost per unit for US Bright

A. Estimation of cost per unit

According to Öker and Ad?güzel (2016,
p.39), cost per unit for each activity has been deduced by dividing the cost
drivers with total cost. In this
case, cost activities and their drivers have been identified.  As per the case study cost, drivers of two
activities has not been provided, which needs to be assumed for calculating the
cost per unit of that two cost. In this case, annual reports can be formed over
the batch orders activity as annual reports need to be presented for each
batch. Therefore, direct link can be established with the annual report and
batch orders. Furthermore, the testing and developing products have been
assumed to be taken over number of purchase orders. Testing and development of
products have been assumed to be done for products purchased. As product
development is done, therefore, link can be established with the product
development and product cost.

Estimation of cost per unit of US Bright

Activity

 Activity cost

 Activity Driver

Annual Quantity of activity driver

 

Prepare annual accounts

5000

Assumed batch orders

1000

5

Process receivables

15000

No if invoices

5000

3

Process payable

25000

No of purchase orders

2500

10

Program production

28000

No of production orders

1000

28

Process sales order

40000

No of sales order

4000

10

Dispatching sales order

30000

No of dispatches

2500

12

Testing and developing products

60000

Assigned to the products directly

2500

24

Load mixers

14050

No to batches

1000

14.05

Operate mixers

45900

No of kilograms

200000

0.2295

Clean mixers

6900

No of trays

1000

6.9

Move mixture to the fillings

3450

No of cakes

200000

0.01725

Clean trays

20000

No of trays

16000

1.25

Fill trays

16000

No of Pastries/cakes

800000

0.02

Move to baking

8000

No of trays

16000

0.5

Set up of the ovens

50000

No to batches

1000

50

Bake pastries/ cakes

130000

No to batches

1000

130

Move to packing

40000

No of trays

16000

2.5

Pack pastries/ cakes

80000

No of pastries/ cakes

800000

0.1

Inspect pastries

2500

No of pastries

50000

0.05

 

 

Total cost per unit

 

297.61675

Table 1: Estimation of Cost per unit for US Bright

(Source: Created by Author)

It has been deduced that total cost per unit,
in this case, has been $297.61675.
Total cost of the product after dividing with the activity drivers helps in
understanding the cost per unit for each cost activity.

B. Presentation of bill of activities

According to Storey (2014,
p.10), Bill of
activities includes total cost of product (Lamington) including cost of labor,
materials and manufacturing overhead for calculating the total cost of the
product. In this case, the bill of activities preparation is to be done based
on the activities provided in the list of lamington product cost. Furthermore,
the activities related to batch cost has been estimated on batch cost and other
activities have been allocated on volume cost. 
Mixer related cost has been provided and calculated on batch cost. Cost
per product price has been estimated to be $ 2.29 in ‘000’) amount. The bill of
activities provides details of the cost incurred for producing the specific
product.

Preparation of bill of activities

 

 

Total volume

100000

 

 

Batch size

1000

Bill of activities

 

 

 

Activity

Activity cost rate

Total cost

in 000

Process receivables

500

50000000

 

Process payables

200

20000000

 

Program production

100

10000000

 

Process order for sales

400

40000000

 

Load mixers

100

100000

 

Operate mixers

30000

30000000

 

Clean mixers

100

100000

 

Move to filling mixtures

30000

30000000

 

Clean trays

2000

200000000

 

Fill trays

100000

10000000000

 

Move to the process of baking

2000

200000000

 

Bake pastries and cakes

100000

100000000

 

Set up ovens

100

100000

 

Move to packing

2000

200000000

 

Pack cakes

100000

10000000000

 

Dispatch order for sales

500

50000000

 

Test and develop products

 

60000000

 

 

Total cost

20990300000

 

 

Cost per unit

209903

2.29903

Table 2: Bill of activities

(Source: Created By Author)

C.  Inclusion of other related
costs for bill of activities preparation

Estimation of total cost including direct
materials, direct labor, and other manufacturing overhead cost helps in
determining the total product cost (Coronel and
Morris, 2016, p.12). In this
case, all the cost related to direct materials, direct labor and manufacturing
overhead has been provided. However, cost related to segregation of
subcomponents, subassemblies, and bill of materials needs to be included.
Furthermore, cost related to intermediate assemblies and other cost related to
the manufacturing products needs to be included in the bill of materials.
Moreover, in this context cost related to sale bill of materials, manufacturing
bills and service materials needs to be included in the bill of materials list.
As stated by Nagle et al. (2016,
p.14), production BOM and component cost for each item forms an important part
of BOM and therefore need to be included. Unit cost and other associated cost
related to inspection and accounts presentation need to be included in this
list.

Therefore, apart from the cost mentioned
in the table of the case study, all the above-mentioned cost needs to be
included further in preparing a complete BOM list. Aforesaid activity list of
cots further helps in understanding the cost of each sub segments.

 

Assignment B: Close analysis of budgetary elements of HLW

1. Relevance of membership fees towards cash position improvement

In the present scenario, two important
sources of income have been seen in the organisational structure of Hawthorn
Leisure works (HLW). The two sources of income have been court fees and
membership fees. Furthermore, the hourly court fees and annual membership fees
can be replaced by the advance fees collection. This further reduces the loss
arising due to collection of hourly fees thereby improving the cash viability
and position in the business. According to Kroes and Manikas (2014, p.37), cash
position improvement serves as the key element for success as it creates
different areas of opportunities thereby enhancing the revenue of the company.

Therefore, introduction of new membership
plan can improve the ability of the company in preparing effective planning
program denoting sources of total receipts in HLW. Advance membership fees
program reduces the administrative cost thereby improving the cash position of
the company. Exclusion of hourly fees collection reduces the potential loss
arising due to new membership fees and redrafting the strategies for cash
management encourages debt reduction. Advance collection of fees as per the new
management plan acts as guideline for managers in determining the areas where
effective utilisation of fees can be done. As stated by Donate and de Pablo
(2015, p.360), effective and judicious use of resources helps in meeting the
obligations thereby enhancing the cash position viability of HLW. Therefore,
introduction of new membership plan can be effective and advantageous for HLW
as it can improve the cash position of the company. Better utilisation of the
resources and advance payment of fees helps the managers in getting an idea
about the total amount of resource available. This further helps in better
utilisation of cash resources that further enhance the financial position of
the business. Better cash position and better operational viability lead to
improvement in cash position of HLW. 

2. Estimation of sales revenue effects

Estimation of earned list of revenue in respect of Old membership fees
in HLW

 

Particulars

Calculations

Amount ( 000)

Individual

500*45
= 22500

22.5

Student

500*30
= 15000

15

Family

1000*100=
100000

100

Total

 

137.50
(22.5+15+100)

 Table 3: Estimation of earned
list of revenue

(Source: Created by Author)

 

 

Estimation of Total receipts from Court fees

Particulars

Calculations

Amount ( 000)

Primetime

(2000*90%)
(181 days) * 4 hours @ 12

86.4

Nonprime time

(2000*
50%) (181 days)*[email protected]

56

Offseason

(
2000*30%)(184 days) *6 hours @6

21.6

Total

 

164

Table 4: Cost Estimation

(Source: Created by Author)

Therefore, based on the above calculation
it is seen that total receipts from the two sources are (137500 + 164000) = $
301500.

Determination of total receipts after the introduction of new membership
plan

In this case, new members are (2000*70%)
= 1400 Members.

Under Campaign

Particulars

Calculation

Amount (000)

Family

700*450*45%

$141750

Individual

700*250*45%

$78750

Total

 

$220500

 Table 5: Cost Estimation

(Source: Created by Author)

 

Under No Campaign

In the case of no campaign situation,
cost estimation needs to be done. In this case, 45% of the current members are
to be included in the list (700*45%) = 315.

Particulars

Calculation

Amount (000)

Family

(700-315) *500

$192500

Individual

(700-315) * 300

$115500

Total

 

$308000

Table 6: Cost Estimation

(Source: Created by Author)

Total receipts derived from new
membership plan

Particulars

Amount

Under Campaign

$220500

Under no campaign

$308000

Total amount of receipts

$ (220500+308000) = $ 528500

Table 7: Cost Estimation

(Source: Created by Author)

Certain assumptions that have been taken
for calculating the above list can be deduced in the form of a table. The list
of occupancy has been taken as the rate ranges reported in the case study.
Effective calculation based on the assumptions has made the task more
efficiently. 

 

 

Particulars

Amount

Prime occupancy time

90%              

Nonprime occupancy time

50%

Off seasonal occupancy

30%

 

Table 8: Assumption list

(Source: Created by Author)

Moreover, it can be stated that the
changes in the collection (Membership fees and Court fees) has created a
positive impact on the earnings of HLW. Processing efficiency and increase in
revenue to $ 227000 ($528500-301500) can introduce value incrementation in the
business. Reduction of administrative fees and effective resource utilisation
can improve the sales position of the company.

3. Identification and derivation of key factors before evaluation of new
membership plan

HLW before implementing new membership
plan needs to develop a planning sketch showing the positive and negative
effects of this implementation. According to Linder and Williander (2017,
p.182), elimination of regular record keeping tactics can be treated as the positive
outcome of the new membership plan implementation. On the contrary Alshurideh
(2016,  P.382), reduction in the number
of members due to shifting to advance fees paid from annual fees payment can be
treated as negative outcome arising due to this new plan implementation. Member
retention can be taken as the main challenge arising due to this new plan
implementation. Reaction of the members after implementation of new plan can be
treated as the major factor, which must be kept in mind before evaluating the
overall plan.

Furthermore, introduction of special
reduction in fee structure can be used as the attractive package for the
members opting for new membership plan. Attractive packages and the customer
retention strategies need to be focused on implementing new membership program.
Moreover, different facilities to be provided to the members and customers
preference pattern can be deduced as one of the factors required for analysed
before implementing new plan.

Conclusion

Cost per unit deducted from different
activity drivers has been used for estimating the total cost per unit for the
cake activities for US Bright. Furthermore, the bill of activities for a
specific product has helped in comparing the total cost with the specific cost
of a product. In the second assignment, the notion showing importance of new
membership plan towards cash position improvement has formed the main part of
this assignment. Sales effects due to new membership plan have helped in
understanding the profitability levels due to implementation of new plan.
Lastly, the factors that must be kept in mind while evaluating a new plan of
HLW has been stated in the assignment. 

 

References

Books

Coronel, C. and Morris, S., (2016). Database
systems: design, implementation, & management Boston: Cengage Learning.

Nagle, T.T., Hogan, J. and Zale, J., (2016).
The Strategy and Tactics of Pricing: New International Edition. Routledge.

Storey, J., (2014). New
Perspectives on Human Resource Management (Routledge Revivals).  Abingdon: Routledge.

Journals

Alshurideh, M.T., (2016). Is Customer
Retention Beneficial for Customers: A Conceptual Background. Journal of
Research in Marketing, 5(3), pp.382-389.

Donate, M.J. and de Pablo, J.D.S., (2015).
The role of knowledge-oriented leadership in knowledge management practices and
innovation. Journal of Business Research, 68(2), pp.360-370.

Kroes, J.R. and Manikas, A.S., (2014). Cash
flow management and manufacturing firm financial performance: A longitudinal
perspective. International Journal of Production Economics, 148, pp.37-50.

Linder, M. and Williander, M., (2017).
Circular business model innovation: inherent uncertainties. Business Strategy
and the Environment, 26(2), pp.182-196.

Öker, F. and Ad?güzel, H., (2016). Time?driven activity?based costing: An implementation in a
manufacturing company. Journal of Corporate Accounting & Finance, 27(3),
pp.39-56.