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Essentials To Managerial Accounting Engage

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Question:

Discuss About The Essentials To Managerial Accounting Engage?

 

Answer:

Introduction:

This case is about Hawthorn Leisure Works which offers tennis court and other physical fitness facilities to its members. Their revenue is from membership fee and court fee. They want to change their fee structure and regarding that an analysis need to be done in comparison to their old plan. They want to analyse as if new plan regarding fee structure will help to improve the revenue or not (Lalli, 2011). They are planning to remove the court fees from their revenue structure and merge the student segment with the individual segment.  There were total 2000 members in the old plan and 70% of those members will continue their membership in the new plan. The new plan consist of only the membership fee and no court fee is there in the new plan. They are estimating that the court fee will be recovered by them with their new plan within six months of the implementation. They further estimate that the new plan will increase the revenue as compared to the old plan. A complete analysis is made regarding the revenues of the HLWs in their old plan as well in their new plan (Heisinger, 2009)

Annual membership fees(old plan)

Individual

 $               45.00

Student

 $               30.00

Family

 $             100.00

Total Members

2000

Family

1000

Individual

500

Student

500

10 Courts and 12 hours per day

Peak tennis season

October to April

Court fees

Days

181

 

Capacity (5pm to 9pm)

90%-100% Avg. 95%

$12 per hour

Capacity(9am to 4pm)

50%-60% Avg. 55%

$8 per hour

Off season

May to September

 

Days

184

 

Court usage(Capacity)

20%-40% Avg. 30%

$ 6 per hour

Old Plan( Revenue)

Amount

Membership Fees

 

Individual

 $        22,500.00

Student

 $        15,000.00

Family

 $     1,00,000.00

Court Fees

 

Peak Season

 

5pm-9pm

 $        82,536.00

9am-4pm

 $        63,712.00

Off Season

 $        39,744.00

Total Revenue

 $     3,23,492.00

New Plan of annual membership fees

Individual

 $         300.00

Family

 $         500.00

Promotional( for complete year)

 

Individual

 $         250.00

Family

 $         450.00

New Plan (Revenue)

Amount

Membership Fees

 

Normal

 

Individual

 $    75,000.00

Family

 $ 1,25,000.00

 

 

Promotional

 

Individual

 $ 1,12,500.00

Family

 $ 2,02,500.00

Total Revenue

 $ 5,15,000.00

Yes, the new membership plan and fee structure improve the ability to plan the cash receipts as under the new plan the membership fee is only there and no court fee is there as any member can use the court at any time without paying any fee. Although the no. of members in the new plan have decreased from 2000 to 1700 but still the revenue increased in comparison to old plan. The increase in revenue will improve the fee structure and the new plan is worthy for company. (Johnson, 2014).

The sales revenue will increase resulting from the planned change in the fee structure for next financial year (Drury, 2005). They changed their revenue structure as earlier the revenue was from membership fee and court fee and in the new plan the revenue is only from the membership fee but still there is considerable increase in the revenue with the implementation of new plan. The sales revenue under old plan was $ 3, 23,492.00 and the sales revenue under new plan $ 5, 15,000.00.

The assumption made by me is regarding the calculation of court fees as the percentage range is given for the occupancy of the court. So, I took the average of the given range. As either we need to take any of the upper or lower range or average of the range one fixed criteria need to be followed.

HLW should accept the new plan as the revenue will increase and the complexity of managing the fee structure will decrease on part of the management. The members will also be happy as there will be no separate fee regarding court usage (Clowes & Scriven, 2015). The fall in the no. of members will be combat by the new fee structure very soon as the membership fee increased as compared to the old plan.

 

Conclusion:

As per the analysis being done regarding the acceptance of new plan or continuing with the old plan it is recommended to accept the new plan as the revenue got increased (Barney, 2014). The revenue under old plan was $ 323492 and the revenue as per the new plan is $ 515000. The benefit is clearly there and no other contention is required to support the new plan.

 

References:

Barney, J. B. 2014, Gaining and Sustaining Competitive Advantage, Pearson Higher Ed.

Clowes, R & Scriven, V 2015, Budgeting: A Practical Approach, Pearson Higher Education AU.

Drury, C 2005, Management Accounting for Business, Cengage Learning EMEA.

Goektuerk, H 2007, Activity Based Costing (ABC) - Advantages and Disadvantages, GRIN Verlag.

Heisinger, K 2009, Essentials to Managerial Accounting, Cengage Learning.

Johnson, P. F. 2014, Purchasing and Supply Management, McGraw-Hill Higher Education.

Lalli, W. R. 2011, Handbook of Budgeting, John Wiley & Sons.

Potts, Keith, and Ankrah, N 2014, Construction Cost Management: learning from case studies, Routledge.

Wiese, N 2009, Activity Based Costing, GRIN Verlag.

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