Methods of Management Accounting

Management accounting is one of the processes used for preparation of management reports as well as accounts that render accurate and timely financial information in front of managers so that they can undertake both short-term and long-term decisions.  On the other hand, Financial Accounting provides information to the financial users that help managers inside the business enterprise with decision-making. The role of management accounting in business enterprise helps in forecasting the future and make or buy decisions. Furthermore, management accounting employs different tools for forecasting business trends that include financial modeling, simulations, ratio analysis, Management Information System, Key Performance Indicators, Game theory as well as balance scorecards and skills to analyze financial statements.

The tools as well as techniques used in the management accounting can be categorized under certain heads. The current segment or study explains two methods of management accounting and these methods are cost accounting as well as cash flow analysis.

Cost accounting help in calculating cost of goods sold, produced by using various tools as well as techniques or methods. In the first assignment, the main purpose of the report is to compute the overhead costs for calculating the production cost. In addition, there are different techniques used in the assignment that help in allocating the overhead expenses to specific product. After evaluating several techniques, it is found that Activity based costing help in allocating overheads as well as determining the product cost in an accurate way. It is even mentioned in the first assignment that there are different overheads that are allocated to the product based on its benefits consumed from various related activities as shown in the Activity based costing method.

As far as second assignment is concerned, it deals with explaining cash flow analysis as it is treated as one of the significant tool used by the managers to understand the cash flows of any business in an effective way. Cash flow analysis techniques had been used in the second assignment for measuring the potentiality of a new plan.

Activity Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	Activity Cost	Activity Driver	Annual Quantity	Cost per Unit of Activity
Process Receivables	$15,000	No. of Invoices	5000	$3.00
Process Payables	$25,000	Nos. of Purchase Orders	2500	$10.00
Program Production	$28,000	Nos. of Production Schedule	1000	$28.00
Process Sales Order	$40,000	Nos. of Sales Order	4000	$10.00
Dispatch Sales Order	$30,000	Nos. of Dispatches	2500	$12.00
Load Mixers	$14,050	Nos. of Batches	1000	$14.05
Operate Mixers	$45,900	Nos. of Kilograms	200000	$0.23
Clean Mixers	$6,900	Nos. of Trays	1000	$6.90
Move mixture to filling	$3,450	Nos. of Cakes/Pastries	200000	$0.02
Clean Trays	$20,000	Nos. of Trays	16000	$1.25
Fill Trays	$16,000	No. of Cakes/Patries	800000	$0.02
Move to baking	$8,000	No. of Trays	16000	$0.50
Set up Oven	$50,000	No. of Batches	1000	$50.00
Bake Cake/Pastries	$1,30,000	No. of Batches	1000	$130.00
Move to Packing	$40,000	No. of Trays	16000	$2.50
Pack Cake/Pastries	$80,000	No. of Cakes/Patries	800000	$0.10
Inspect Patries	$2,500	No. of Pastries	50000	$0.05

Activity Consumed	Annual Quantity of Activity Driver	Cost per Unit of Activity	Total Cost
Process Receivables	500	$3.00	$1,500.00
Process Payables	200	$10.00	$2,000.00
Program Production	100	$28.00	$2,800.00
Process Sales Order	400	$10.00	$4,000.00
Load Mixers	100	$14.05	$1,405.00
Operate Mixers	30000	$0.23	$6,885.00
Clean Mixers	100	$6.90	$690.00
Move mixture to filling	30000	$0.02	$517.50
Clean Trays	2000	$1.25	$2,500.00
Fill Trays	100000	$0.02	$2,000.00
Move to baking	2000	$0.50	$1,000.00
Set up Oven	100	$50.00	$5,000.00
Bake Cake/Pastries	100	$130.00	$13,000.00
Move to Packing	2000	$2.50	$5,000.00
Pack Cake/Pastries	100000	$0.10	$10,000.00
Dispatch Sales Order	500	$12.00	$6,000.00
Develop & Test Product			$600.00
Total Overhead Cost			$64,897.50
Annual Volume			100000
Cost per unit for Lamington			$0.65

The above table shows overhead costs and these are the indirect cost that supports the production process or in that case, distribution purposes (van Helden and Uddin 2016). Furthermore, there are several direct costs that need to be mentioned in the case study but it was not mentioned. Direct costs are the cost that attributed to the manufacturing of any rendered goods or services. It is one of the significant elements used in production cost.  It is where it is not possible to manufacture the goods without incurring any associated cost (Van der Stede 2016). Therefore, in order to calculate product cost of Lamington, it is important to include direct costs that are listed below:

• Direct Labor Costs
• Direct Material Costs
• Freight Inward charges

Direct and Indirect Costs of Production

From the given case study, it can be seen that HLW earn fees from two different sources and these sources are annual membership fees as well as court fees (Taylor and Scapens 2016). With that, more than 40% of the total revenue is generated in the form of annual membership for a given period of 2 months. As far as the balance part is concerned, it is generated from the court fees for each year annually (Soderstrom, Soderstrom and Stewart 2017). Furthermore, the cash inflow from court fees does not remain even per month. During Peak season (that is October to April), it is noted that the cash inflow from court feeds uses to be high that is more than 45% of the total revenue. On the contrary, during the months May to September, it is noted that the amount of court fees collected is very low as it covers only 15% of the total revenue (Solovida et al. 2017).

In case where HLW implement new membership plan, it is important to collect 80% of the total revenue within the first month of the accounting period. Addition to that, HLW can get several benefits that are listed below with proper justification if they implement this new plan:

• Implementation of new plan will benefit HLW in generating unrestricted cash flow from general operating sources in form of annual one-time membership (Nuhu, Baird and Appuhami 2016). As far as current plan is concerned, the club need to be dependent upon individual programs like hourly court fees for earning more than 50% of the total revenue
• Implementation of new plan will benefit HLW in preparing such platform that assist the club for generating steady as well as cash flows every month (Modell 2014).
• Implementation of new plan will benefit HLW as club management can accumulate more than 80% of the total revenue for initial months as per new plan rather than waiting for 6 complete months (Lopez-Valeiras, Gomez-Conde and Naranjo-Gil 2015). Therefore, the benefits will help in planning for proper utilization of the accumulation fund as well as taking different financial decisions as and when required.

In the case study, several issues are highlighted and for that, certain assumptions needs to be made for understanding the effect of new membership plan on the sales revenue (Lachmann, Trapp and Trapp 2017). Some of the assumptions are mentioned below with proper justification:

• Court usage is 100% during peak season
• 60% utilization of capability during non-prime time
• 40% court usage during off-season

Sales revenue under existing plan

Below, calculation is made for determining the effect and earned current sales by using systematic method by determining the aforementioned assumptions

Particulars	Weightage	No. of Members	Annual Membership Fees	Total Fees
Total Members	100%	2000
Individual Members	25%	500	$45	$22,500
Student Members	25%	500	$30	$15,000
Family Members	50%	1000	$100	$1,00,000
Total Membership Fees				$1,37,500

Particulars	Hourly Court fees	No of Courts	No. of Days	Usage %	Hours	Total Fees
Peak Season- Prime Time	8	10	181	100%	4	$57,920
Peak Season- Non Prime Time	12	10	181	60%	8	$1,04,256
Off Season	6	10	184	40%	12	$52,992
Total Court Fees						$2,15,168

Particulars	Amount	Weightage
Membership Fees	$1,37,500	38.99%
Court Fees – Peak Season	$1,62,176	45.99%
Court Fees – Off Season	$52,992	15.03%
Total Fees Collected	$3,52,668	100%

Sales revenue under new membership plan

It is understood that the club would earn sales revenue as per the new membership plan as mentioned in the below tables:

Particulars	Current Member	% of Continuation	% of Active Members	Annual Fees	Total Fees
Individual	500	70%	45%	250	$39,375
Student	500	70%	45%	250	$39,375
Family	1000	70%	45%	450	$1,41,750
Total Fees from Early Membership					$2,20,500

Particulars	Current Member	% of Continuation	% of General Members	Annual Fees	Total Fees
Individual	500	70%	55%	250	$48,125
Student	500	70%	55%	250	$48,125
Family	1000	70%	55%	450	$1,73,250
Total Fees from Normal Membership					$2,69,500

Particulars	Amount	Weightage
Membership Collected:
August-September	$2,20,500	34.45%
October	$2,69,500	42.11%
March	$1,50,000	23.44%
Total Membership	$6,40,000	100.00%

Below, effect on sales revenue and cash flow had been computed on the periodic sales revenue.

Particulars	Current Plan	New Plan	Increase/ (Decrease)
Revenue:
Pre-Received (Aug-Sep)	$0	$2,20,500	$2,20,500
October-April	$2,99,676	$4,19,500	$1,19,824
May-September	$52,992	0	-$52,992
Total Membership	$3,52,668	$6,40,000	$2,87,332

From the above table, it is noted that the sales revenue of HLW increases by $287332 if they start implementing the new plan so that they get highest court usages in particular seasons. This was done by calculating sales revenue under current plan (Klychova, Faskhutdinova and Sadrieva 2014). Furthermore, it can be understood from the calculation that by using the new plan, the club can easily collect lion share of the expected sales revenue for the month of October.

Evaluation of New Fee Structure for HLW

It is important to understand the fact that sales revenue for the new plan is higher as compared to previous one (Järvenpää et al. 2016). This is due to plenty of factors that need to be dealt with at the time of implementing new plan. Some of the factors are listed below with proper justification:

• It is understood that the membership fees of the new plan is much higher as compared to previous fees structure (Hopper and Bui 2016). Due to this, it is expected that there will be loss of members after implementing the new plan. Addition to that, students who are not financially independent may not afford higher fees as well as renewing the membership for the new fees structure like courts without any additional fees. Furthermore, after evaluating the outcome, it need to first analyze the feedback taken from all the members. Therefore, the management needs to look at the expenses at the time of collecting as well as analyzing the feedbacks (Gibassier and Schaltegger 2015).
• By implementing new plan, the management will be able to collect all the fees for initial two or three months where there will be no court fees. In that way, management can reduce the cost of collecting court fees as well as preparation of periodic records for earned revenue.  Therefore, it is important to include such cost reduction at the time of evaluation process (Cleary 2015).
• Within a time span of 6 months, the management expects that they will lose some of the members. The management need to implement new plan otherwise expected revenue cannot be achieved (Bui and De Villiers 2017).
• It is needed for the club to conduct special campaign in order to promote new plan. Furthermore, the cost of promotional campaign needs to be included at the time of calculating net income as well as cash flows while generating new plan.

Conclusion 

At the end of the study, it is concluded that using Activity based costing is beneficial that has been included from various business operations as properly included in the given case study. Addition to that, Activity-based costing refers to the accurate cost of a business process that focuses primarily on cause as well as effect relationship in the cost incurrence. However, this technique is simple for better understanding as well as analyzing the incurred costs. Therefore, it is important to state the fact that Activity based costing is advantageous as it assist business owner for arriving at undertaking better decision-making process.

As far as second part of the assignment is concerned, cash flow analysis is utilized as it assists the managers to undertake decisions on whether new plan is beneficial as compared to older one. Therefore, the new plan can generate more cash for the business as compared to older one as it is derived from the result of cash flow analysis.

Reference List

Bui, B. and De Villiers, C., 2017. Business strategies and management accounting in response to climate change risk exposure and regulatory uncertainty. The British Accounting Review, 49(1), pp.4-24.

Cleary, P., 2015. An empirical investigation of the impact of management accounting on structural capital and business performance. Journal of Intellectual Capital, 16(3), pp.566-586.

Gibassier, D. and Schaltegger, S., 2015. Carbon management accounting and reporting in practice: a case study on converging emergent approaches. Sustainability Accounting, Management and Policy Journal, 6(3), pp.340-365.

Hopper, T. and Bui, B., 2016. Has management accounting research been critical?. Management Accounting Research, 31, pp.10-30.

Järvenpää, M., Järvenpää, M., Länsiluoto, A. and Länsiluoto, A., 2016. Collective identity, institutional logic and environmental management accounting change. Journal of Accounting & Organizational Change, 12(2), pp.152-176.

Klychova, G.S., Faskhutdinova, ?.S. and Sadrieva, E.R., 2014. Budget efficiency for cost control purposes in management accounting system. Mediterranean journal of social sciences, 5(24), p.79.

Lachmann, M., Trapp, I. and Trapp, R., 2017. Diversity and validity in positivist management accounting research—A longitudinal perspective over four decades. Management Accounting Research, 34, pp.42-58.

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Modell, S., 2014. The societal relevance of management accounting: An introduction to the special issue. Accounting and Business Research, 44(2), pp.83-103.

Nuhu, N.A., Baird, K. and Appuhami, R., 2016. The Association between the Use of Management Accounting Practices with Organizational Change and Organizational Performance. In Advances in Management Accounting (pp. 67-98). Emerald Group Publishing Limited.

Soderstrom, K.M., Soderstrom, N.S. and Stewart, C.R., 2017. Sustainability/CSR research in management accounting: A review of the literature. In Advances in Management Accounting (pp. 59-85). Emerald Publishing Limited.

Solovida, G.T., Solovida, G.T., Latan, H. and Latan, H., 2017. Linking environmental strategy to environmental performance: Mediation role of environmental management accounting. Sustainability Accounting, Management and Policy Journal, 8(5), pp.595-619.

Taylor, L.C. and Scapens, R.W., 2016. The role of identity and image in shaping management accounting change. Accounting, Auditing & Accountability Journal, 29(6), pp.1075-1099.

Van der Stede, W.A., 2016. Management accounting in context: Industry, regulation and informatics. Management Accounting Research, 31, pp.100-102.

van Helden, J. and Uddin, S., 2016. Public sector management accounting in emerging economies: A literature review. Critical Perspectives on Accounting, 41, pp.34-62

Williams, J., 2014. Financial accounting. McGraw-Hill Higher Education.