Get Instant Help From 5000+ Experts For
question

Writing: Get your essay and assignment written from scratch by PhD expert

Rewriting: Paraphrase or rewrite your friend's essay with similar meaning at reduced cost

Editing:Proofread your work by experts and improve grade at Lowest cost

And Improve Your Grades
myassignmenthelp.com
loader
Phone no. Missing!

Enter phone no. to receive critical updates and urgent messages !

Attach file

Error goes here

Files Missing!

Please upload all relevant files for quick & complete assistance.

Guaranteed Higher Grade!
Free Quote
wave

Construct an Excel spreadsheet to
a. Calculate the cost per unit of activity driver for the activities listed 
b. Based on the information in the following table, prepare a bill of activities and determine the cost per unit for Lamington
c. What other costs must be added to calculate the product cost for Lamington?

Assessment task part A (Activity based costing)

Activity based costing (ABC) is the accounting system that recognizes activities of a firm and then allocates the indirect costs to the products. The ABC system identifies the relationship among the products, cost and activities and through the relationship allocates the indirect cost to the products. However, few costs are not easy to allocate through ABC method. For instance, indirect cost like office staff salaries are not easy to allocate to any one product and therefore ABC method is have some disadvantages while using it in the manufacturing sector (Aydin Keskin and Ozkan 2013). ABC system is mostly used under the manufacturing sector as it increases the reliability of the cost data and therefore, producing the true costs and classification of cost in better way. This system of costing is used under the product costing, target costing and product line of the profitability analysis, service pricing and the profitability analysis (Hardan and Shatnawi 2013). This method is very popular as the companies can focus on the corporate strategies if the costs are grasped in better way. As per ABC, the activities can be accounted for as any event or transactions as cost driver. The cost driver is the activity driver that is used for referring the basis of allocation. The cost driver examples includes the machine set up cost, power consumption, maintenance costs, production orders and quality inspections (Fullerton, Kennedy and Widener 2013). Unlike the traditional method of cost allocation that are based on the volume count like direct labour hours or machine hours for allocating the overhead cost or indirect cost, the ABC system classifies five levels of the activity that are unrelated to number of units produced. These levels are inclusive of unit level activity, batch level activity, product level activity and organization sustaining activity.   

Activity

Total activity cost

Activity driver

Quantity of activity driver

Cost per unit of activity

Prepare annual accounts

 $            5,000.00

None available

Process receivables

 $          15,000.00

No. of invoices

5000

 $            3.00

Process payables

 $          25,000.00

No. of purchase orders

2500

 $          10.00

Program production

 $          28,000.00

No. of production schedules

1000

 $          28.00

Process sales order

 $          40,000.00

No. of sales orders

4000

 $          10.00

Dispatch sales order

 $          30,000.00

No. of dispatches

2500

 $          12.00

Develop and test products

 $          60,000.00

Assigned directly to product

Load mixers

 $          14,050.00

No. of batches

1000

 $          14.05

Operate mixers

 $          45,900.00

No. of kilograms

200000

 $            0.23

Clean mixers

 $            6,900.00

No. of trays

1000

 $            6.90

Move mixers to filling

 $            3,450.00

No. of cakes / Pastries

200000

 $            0.02

Clean trays

 $          20,000.00

No. of trays

16000

 $            1.25

Fill trays

 $          16,000.00

No. of cakes / Pastries

800000

 $            0.02

Move to baking

 $            8,000.00

No. of trays

16000

 $            0.50

Set up ovens

 $          50,000.00

No. of batches

1000

 $          50.00

Bake cakes / Pastries

 $        130,000.00

No. of batches

1000

 $        130.00

Move to packing

 $          40,000.00

No. of trays

16000

 $            2.50

Pack cakes / pastries

 $          80,000.00

No. of cakes / Pastries

800000

 $            0.10

Inspect pastries

 $            2,500.00

No. of pastries

50000

 $            0.05

Activity

Cost per unit of activity

Annual quantity

Total cost per activity

Process receivables

 $             3.00

500

 $     1,500.00

Process payables

 $           10.00

200

 $     2,000.00

Program production

 $           28.00

100

 $     2,800.00

Process sales order

 $           10.00

400

 $     4,000.00

Load mixers

 $           14.05

100

 $     1,405.00

Operate mixers

 $             0.23

30000

 $     6,885.00

Clean mixers

 $             6.90

100

 $       690.00

Move mixers to filling

 $             0.02

30000

 $       517.50

Clean trays

 $             1.25

2000

 $     2,500.00

Fill trays

 $             0.02

100000

 $     2,000.00

Move to baking

 $             0.50

2000

 $     1,000.00

Set up ovens

 $           50.00

100

 $     5,000.00

Bake cakes / Pastries

 $         130.00

100

 $   13,000.00

Move to packing

 $             2.50

2000

 $     5,000.00

Pack cakes / pastries

 $             0.10

100000

 $   10,000.00

Dispatch sales order

 $            12.00

500

 $     6,000.00

Develop and test product

 $       600.00

Total

 $ 64,897.50

Various other costs that shall be added for calculating the product cost of Lamington are the inspection cost of the product, labour cost, material cost and operational cost of the product (Shields 2015).

Using budgets for evaluating business decisions

Many organizations are associated with the term budget and in accounting it is the financial plan for the specific period of time. It also includes the planned volumes for revenue and sales, expenses and costs, resource quantities and cash flows (Klychova, Faskhutdinova and Sadrieva 2014). Budget is the estimation for expenses and revenues and is re-evaluated and compiled on the periodic basis. It is generally the microeconomic concept that reveals that the trade-offs made while any good is exchanged for other goods. The surplus budget means the profits are anticipated, the deficit budget means the expenses will be more than revenues. The budget preparing process is started through the assumptions with regard to the upcoming period of budget. The assumptions are associated with the trends of projected sales, cost trends and the entire outlook (Lavia López and Hiebl 2014). The factors that have an impact on the potential expenses are identified and monitored. Generally the sales budget is prepared 1st as the subsequent expenses budgets cannot be prepared without the future cash flows. Further, the budgets are prepared for various departments in the organization. For instance, the manufacturers prepare separate budget for overheads, labour and direct labours. 

Computation of unit cost

Cash receipts are the specialised account that measures the credit or cash sales received and then evaluate these cash flows. In case of HLW, 2 main factors are there that are affecting the receipts of cash that are the hourly court fees and the annual fees for membership (Soin and Collier 2013). The membership fees that are charged annually are direct with the fixed fees that are annually collected. Therefore, the fixed and constant factor here is the annual membership fees. However, the hourly court fees vary from $ 8 to $ 12 and the transactions are transacted on everyday basis. Further, the total price will vary due to the variance in the time spent in club, season of year, time of day whether non-prime time or prime-time and numbers of the customers. Thus, the generation of cash flow from hourly court fees are not predictable and fixed and it generally covers the wider area for the receipts of cash as compared to the fees from annual membership (Whitecotton, Libby and Phillips 2013).

With the implementation of new membership plan, HLW can improve their cash receipt plan. The reason behind this is the hourly fees are taken out and the fees from annual membership are only left for charging (Williams 2014). This means impacts on the cash receipts will be significantly reduced as the fees from annual membership are constant and fixed that will lead to generation of predictable cash flows. Further, the chances of cash loss from hourly court fees will also be eliminated if the new membership plan is implemented. However, these issues are not subtle and predictable (Vakalfotis, Ballantine and Wall 2013). Thus, the occurrence of these fluctuations will only take place only after certain period of time which in turn will increase the chances of financial debt.

The receipts of cash will be planned in better way with the improvements in the management of cash flows and drafting the plans for future cash flows that may include avoidance of shortages or idle cash will more effective. Implementation of new fee structure will not have any impact on the overall profit of the club (Otley and Emmanuel 2013). Further, it will create higher level of possibility for increasing the profit or the reduction of future or existing debts. Therefore, implementation of the new plan will lead to effective enhancement that will increase the ability of HLW to manage their cash in better way.

Membership fee receipts

Particulars

Amount

Individual

 $           22,500.00

Student

 $           15,000.00

Family

 $         100,000.00

Total

 $         137,500.00

Bill of activities and determining unit cost for Lamington

Court fees receipts

Particulars

Amount

Prime time

 $           86,400.00

Non-prime time

 $           56,000.00

Off season

 $           21,600.00

Total

 $         164,000.00

Entire receipts from two sources will be = ($ 137,500 + $ 164, 000) = $ 301,500.

Calculation of receipts after implementation of new plan –

Receipts from the membership fees –

New members = (2000 / 70%) = 1400 members 

Under the campaign

Particulars

Amount

Family

 $         141,750.00

Individual

 $           78,750.00

Total

 $         220,500.00

Receipts if no campaign took place

Particulars

Amount

Family

 $         192,500.00

Individual

 $         115,500.00

Total

 $         308,000.00

Total receipts under new implementation plan

Particulars

Amount

Under campaign

 $         220,500.00

Under no-campaign

 $         308,000.00

Total receipts

 $         528,500.00

Therefore, the changing the plan for collecting fees or the plan for new membership will put positive and effective impact on the processing as it will lead to incremental revenue amounted to ($ 528,500 - $ 301,500) = $ 227,000

For evaluation purpose, the key factors identified by HLW are as follows –

The management of HLW identified the reduction of cost with regard to administration after the implementation of new membership plan as after that they will not required to prepare the regular record associated with the collection of revenue  against use of the court by the members (Lavia López and Hiebl 2014). The initial issues after new plan implementation for the management was getting the payments in account of advance fees from the members against the membership. Further, the onetime advance payments have an adverse impact as there is visible fall in the total number of the members (Tappura et al. 2015).    

However, to evaluate the new membership plan completely they made various financial analyses such as for the purpose of evaluating the liquid funds the management shall calculate the liquidity ratios as it will assist in making the optimum utilization of the liquid funds (Cokins 2014). Further the cash budgets are also prepared for cash flow estimation. Statement for cash flows prepared by HLW will assist in controlling and managing the liquid funds available. They further, maintain adequate balance among the cash outflows and cash inflows. The management also prepares the flexible budget that will assist to achieve the desired set outcomes and through following the operational budget levels to get effective support (Leitner 2013).

The new policy for the membership focuses on the one time preparation of the cash budget as they collect the revenues for single time. Management of effective cash is needed for successfully executing the new membership plan (Christ and Burritt 2013). Efficient cash management includes the preparation of cash flow statement as the management become capable of managing and controlling the activities associated with the cash equivalents and cash. Further, few changes were taken place based on the new membership plan that changes is there in the period of revenue recovery from the respective members. According to the new plan, the members are required to make advance payments for the services they will get in remaining year (Taipaleenmäki and Ikäheimo 2013).

Conclusion 

It is recognized from above discussion that the activity based costing method is considered to be the reliable method for allocation of cost among various departments. For cash flow management and using the cash at optimum level the company can prepare the cash flow statement. It can also be used for increasing the profit levels of the company. Further, the managements are required to consider volume and sales analysis under their pricing policies. They are required to focus on the factors that will help them to maximise profits.   

Reference 

Aydin Keskin, G. and Ozkan, C., 2013. Multiple criteria ABC analysis with FCM clustering. Journal of Industrial Engineering, 2013.

Christ, K.L. and Burritt, R.L., 2013. Environmental management accounting: the significance of contingent variables for adoption. Journal of Cleaner Production, 41, pp.163-173.

Cokins, G., 2014. Top 7 trends in management accounting, Part 2. Strategic Finance, 95(7), pp.41-48.

Fullerton, R.R., Kennedy, F.A. and Widener, S.K., 2013. Management accounting and control practices in a lean manufacturing environment. Accounting, Organizations and Society, 38(1), pp.50-71.

Hardan, A.S. and Shatnawi, T.M., 2013. Impact of applying the ABC on improving the financial performance in telecom companies. International Journal of Business and Management, 8(12), p.48.

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.

Lavia López, O. and Hiebl, M.R., 2014. Management accounting in small and medium-sized enterprises: current knowledge and avenues for further research. Journal of Management Accounting Research, 27(1), pp.81-119.

Leitner, S., 2013. Information Quality and Management Accounting: A Simulation Analysis of Biases in Costing Systems (Vol. 664). Springer Science & Business Media.

Otley, D. and Emmanuel, K.M.C., 2013. Readings in accounting for management control. Springer.

Shields, M.D., 2015. Established management accounting knowledge. Journal of Management Accounting Research, 27(1), pp.123-132.

Soin, K. and Collier, P., 2013. Risk and risk management in management accounting and control.

Taipaleenmäki, J. and Ikäheimo, S., 2013. On the convergence of management accounting and financial accounting–the role of information technology in accounting change. International Journal of Accounting Information Systems, 14(4), pp.321-348.

Tappura, S., Sievänen, M., Heikkilä, J., Jussila, A. and Nenonen, N., 2015. A management accounting perspective on safety. Safety science, 71, pp.151-159.

Vakalfotis, N., Ballantine, J. and Wall, A.P., 2013. A literature review on the impact of Enterprise Systems on management accounting.

Whitecotton, S., Libby, R. and Phillips, F., 2013. Managerial accounting. McGraw-Hill Higher Education.

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

Cite This Work

To export a reference to this article please select a referencing stye below:

My Assignment Help. (2020). Activity Based Costing And Budgeting Essay.. Retrieved from https://myassignmenthelp.com/free-samples/ha2011-management-accounting-for-activity-based-costing-method.

"Activity Based Costing And Budgeting Essay.." My Assignment Help, 2020, https://myassignmenthelp.com/free-samples/ha2011-management-accounting-for-activity-based-costing-method.

My Assignment Help (2020) Activity Based Costing And Budgeting Essay. [Online]. Available from: https://myassignmenthelp.com/free-samples/ha2011-management-accounting-for-activity-based-costing-method
[Accessed 12 July 2024].

My Assignment Help. 'Activity Based Costing And Budgeting Essay.' (My Assignment Help, 2020) <https://myassignmenthelp.com/free-samples/ha2011-management-accounting-for-activity-based-costing-method> accessed 12 July 2024.

My Assignment Help. Activity Based Costing And Budgeting Essay. [Internet]. My Assignment Help. 2020 [cited 12 July 2024]. Available from: https://myassignmenthelp.com/free-samples/ha2011-management-accounting-for-activity-based-costing-method.

Get instant help from 5000+ experts for
question

Writing: Get your essay and assignment written from scratch by PhD expert

Rewriting: Paraphrase or rewrite your friend's essay with similar meaning at reduced cost

Editing: Proofread your work by experts and improve grade at Lowest cost

loader
250 words
Phone no. Missing!

Enter phone no. to receive critical updates and urgent messages !

Attach file

Error goes here

Files Missing!

Please upload all relevant files for quick & complete assistance.

Plagiarism checker
Verify originality of an essay
essay
Generate unique essays in a jiffy
Plagiarism checker
Cite sources with ease
support
Whatsapp
callback
sales
sales chat
Whatsapp
callback
sales chat
close