Question:
1. This assignment is to be submitted in accordance with assessment policy stated in the Subject Outline and Student Handbook. 2. It is the responsibility of the student who is submitting the work, to ensure that the work is in fact her/his own work. Incorporating another’s work or ideas into one’s own work without appropriate acknowledgement is an academic offence. Students can submit all assignments for plagiarism checking (self-check) on Blackboard before final submission in the subject. For further details, please refer to the Subject Outline and Student Handbook. 3. Maximum marks available: 20 marks.
4. Due date of submission: Week 10 5. Assignment should be up to 2,000-2,500 words with maximum of 03 members in each group. Please use “word count” and include in report. Important Note: Please submit Assignment through SafeAssign.
1. You at least should have the following details: • Assignment Cover page clearly stating your members name and student ID’s • A table of contents including a summary • Body of the assignment with sections to answer the two sections and with appropriate section headings • Conclusion • List
of references. 2. Spreadsheet and tables if required.
Assessment Task Part: A (Activity Based Costing) (10 Marks) US Bright produces a list of the activities performed at Cravings for cakes and their annual costs. In addition, Bright identifies an activity driver for each activity and the annual quantity of each activity driver. A partial list of activity costs and quantities of activity drivers is shown below:
Cravings for Cakes list of Activities Activity Activity Cost ($) Activity Driver Annual Quantity of Activity driver Prepare Annual Accounts 5000 None Available Process receivables 15000 No. of Invoices 5000 Invoices Process payables 25000 No. of purchase orders 2500 Purchase orders Program production 28000 No. of production schedules 1000 schedules Process Sales order 40000 No. of sales orders 4000 sales orders Dispatch sales order 30000 No. of dispatches 2500 dispatches Develop and test products 60000 Assigned directly to products Load mixers 14050 No. of batches 1000 batches Operate mixers 45900 No. of kilograms 200000 kilograms Clean mixers 6900 No. of trays 1000 batches Move mixture to filling 3450 No. of cakes/pastries 200 000 kilograms Clean trays 20000 No. of trays 16000 trays Fill trays 16000 No. of cakes/pastries 800,000 cakes/pastries Move to baking 8000 No. of trays 16,000 trays Set up ovens 50000 No. of batches 1000 batches Bake Cakes/Pastries 130000 No. of batches 1000 batches Move to packing 40000 No. of trays 16,000 trays Pack cakes/pastries 80000 No. of cakes/pastries 800,000 cakes/pastries
Construct an Excel spreadsheet to
a. Calculate the cost per unit of activity driver for the activities listed (04 Marks)
b. Based on the information in the following table, prepare a bill of activities and determine the cost per unit for Lamington (05 Marks)
c. What other costs must be added to calculate the product cost for Lamington? (01 Mark)
Lamington (Batch Size 1000; Annual Volume 100,000) Activity Consumed Annual Quantity of Activity Driver Process Receivables 500 Invoices Process Payables 200 Purchase Orders Program Production 100 Production Schedules Process Sales Order 400 Sales Orders Load Mixers 100 Batches Operate Mixers 30 000 Kilograms Clean Mixers 100 Batches Move mixture to filling 30 000 Kilograms Clean trays 2000 trays Fill trays 100 000 cakes Move to baking 2000 trays Set up ovens 100 Batches Bake cakes/pastries 100 Batches Move to packing 2000 trays Pack Cakes/Pastries 100 000 cakes Dispatch Sales Order 500 Sales orders Develop and Test product $600 assigned directly to this product.
Assessment Task Part B (Budgeting) (10 Marks) Using Budgets to Evaluate Business Decisions: Hawthorn Leisure Works (HLW) offers tennis courts and other physical fitness facilities to its members. The club has 2000 members. Revenue is derived from annual membership fees and hourly court fees. The annual membership fees are:
Approximately half the members are family and the remaining memberships are split equally between individuals and students. For the next two financial years, the hourly court fees are $8 and $12, depending on the season and the time of the day (prime versus non-prime time).
There are 10 courts each club. The courts are available for 12 hours per day, from 9am to 9pm. The peak tennis season runs from October to April (181 days). During this period, court usage averages from 90 to 100 per cent of capacity during prime time (5pm to 9pm) and 50 to 60 per cent of capacity during the remaining hours (9am to 4pm).
Daily court usage during the off season averages from 20 to 40 per cent of capacity, and is charged at $6 per hour. All of HLW’s memberships expire at the end of September. A substantial amount of cash receipts is collected during the early part of the tennis season due to renewal of annual membership fees and heavy court usage. However, cash receipts are not as large in autumn and drop significantly in the winter months.
For the start of the new financial year on 1 October, HLW is considering introducing a new membership and fee structure in an attempt to improve its cash flow planning. Under the new membership plan, only an annual membership fee would be charged rather than a membership fee plus hourly court fees. There would be two classes of membership, with annual fees as follows:
The annual fee would be collected in advance at the time the membership application was completed. Members would be allowed to use the tennis courts as often as they wished during the year under the new plan. All future memberships would be sold under these new terms. A special promotional campaign would be instituted to attract new members and to encourage current members to remain with the club.
The annual fees for individual and family memberships would be reduced to $250 and $450 respectively if members pay for their yearly memberships in advance during the two month promotional campaign. HLW’s management estimate that 70% of the current members will continue with the club and student members would convert to individual membership.
The most active members (45% of current members) would pay the yearly fee in advance and receive the special fee reduction, while the remaining members who continued would renew memberships in October. Those members who could not re-join are not considered active (that is, they five times or less than a year). Management estimates that the loss of members would be offset fully by new members within six months of instituting the new plan.
These new members would pay a proportional amount of the yearly fee on joining. Furthermore, many of the new members would be individuals would pay during non-prime time. Management estimates the adequate court time will be available for all members under the new plan.
If the new membership plan is adopted, it would be instituted at the start of the financial year (1 October), which is the start of the tennis season. The special promotional campaign would be conducted during August and September, prior to the start of the new financial year.
Your consulting firm has been hired to help HLW to evaluate its new fee structure. Explain the following issues to report to your managing director:
a) Will HLW’s new membership plan and fee structure improve its ability to plan its cash receipts? Explain. (2marks)
b) Estimate the effect on sales revenue resulting from the planned change in fee structure for the next financial year, which starts 1 October and ends on 30 September. State any assumptions that you need to make. (5marks)
c) HLW should evaluate the new membership plan and fee structure completely before it decides to adopt or reject it. Identify the key factors that HLW should consider in its evaluation. (3marks)
Answer:
Assessment Task A
Introduction:
Activity Based Costing is the method of costing that pools the activities on the basis of their type and the quantum. The Activity Based Costing is about the allocation of cost on the basis of the cost drivers. This costing system is used by all the manufacturing units as this is actually the proper allocation of the cost (Edmonds, Edmonds, Tsay and Olds, 2016). With the help of ABC Costing we can analyse the product cost and do the profitability analysis of the company.
Our case is about US Bright Product Company they are manufactures of cakes and pastries, they use Activity Based Costing Technique for allocating their indirect cost to the product. Our analysis is also based on the allocation of indirect cost with the help of Activity Based Costing Techniques. The companies Indirect costs are given, what we need to do is to allocate these costs on the basis of cost drivers available to us. The first part is all about allocation of indirect cost on the basis of cost drivers. The second case is about one of the division of US Bright that is Lamington; we need to draw a Statement of Bill of Activities of Lamington and then we need to calculate its product cost. Lastly we need to tell them about the additional costs that need to be added in the Lamington cost to arrive at the Lamington product cost.
Part (a)
Cost per unit of Activity Driver
The cost per unit means the cost incurred by the company for producing one unit. How much they need to expand on one product from beginning to end as from raw material to finished product. In this part we need to calculate the cost per unit using the information given to us regarding the indirect cost and the cost drivers. We need to make a statement where we present the indirect cost categories their cost pools and the allocation of cost on the basis of cost pools. The statement below depicts all activities and their allocation:
This table is about the indirect costs their activity pools and the cost per unit of the product. The cost per unit is $ 268.57 which we got by adding all the costs which we allocated on the basis of cost pools.
Part (b)
Bill of Activities:
In this part we need to prepare a statement for the bill of activities of the Lamington. The annual production volume of Lamington is 100000 and the batch size is 1000 batches. We also need to calculate here the cost per unit which we calculate by dividing the total cost from annual production volume. The above table explains the cost per unit of producing cakes and pastries of Lamington division. The total cost or we can say the billing amount is $ 64897.50. The annual production volume is 100000. The cost per unit is calculated by dividing $ 64897.50 form 100000 and the cost per unit is $ 0.65. That means the cost of producing 1 unit of Lamington is $ 0.65.
Part (c)
Additional Cost:
We prepared the schedule for the billing amount and also calculated the cost per unit of Lamington but there arises a point as all the indirect costs are included for the calculation but the cost of preparing annual accounts is not added for the calculation of cost per unit. It is necessary to add the cost of preparing annual accounts to arrive at the product cost of Lamington. The cost of preparing annual accounts is not a product attributable cost so that is why we need to add this cost to the total of indirect cost
Conclusion:
The above analysis is all about the costing techniques used by US Bright for producing cakes and pastries we did used activity based costing to perform a detailed analysis for the allocation of the indirect cost of US Bright Product Company. The cost per unit of manufacturing cakes and pastries is $ 268.6 we calculated this cost by adding all the cost. The indirect costs are allocated on the basis of cost per unit and then they all are added together to arrive at the unit cost of producing.
Lamington is a division of US Bright and we did prepared a bill of activities of US Bright and the total billing amount is $ 64897.50. We did also calculated per unit cost for Lamington and the unit cost is $ 0.65. The additional cost which can be added in the company’s cost to arrive at the total cost by the company is the cost of preparing annual accounts although this cost is not product attributable but still we cannot consider it as irrelevant cost. We cannot avoid the cost of preparing annual accounts it is relevant for decision making. The complete analysis is all about the cost structure of US Bright and Lamington and about per unit cost of producing cakes and pastries.
Assessment Task B
Introduction:
This case is about the budgeting forecast of Hawthorn Leisure Works (HLW) which is a fitness centre and also has some space for sports activities like tennis court. The case is about the revenue structure of HWL as there revenues are majorly from membership fee paid by the members and the court fee for the court usage. They are willing to change their revenue structured and also offered some promotional discounts to its members as well.
There new structure consists of only membership fee and no court fee is charged form the members for the usage of court. There were total 2000 members out of them only 70% members are willing to continue their members with HWL. Among those 70% members 45% are opting to adopt the promotional offer given by them.In this case we need to perform a comparative study in-between the new plan and old plan of membership of HWL.
The old plan was based on the membership fee and the court fee depending on the court usage. The new plan only consists of membership fee no court fee is charged by them under the new plan. The comparison is all about to know the revenue of under the old plan and in the new plan as they want to analyse that the revenue under new plan is better or not in comparison to the old plan. Here we present the old plan of HLW and the revenue structure under the old plan:
Part (a)
Revenue under new plan:
In this we need to analysis the revenue that can be generated by HLW if they implement the new plan. The total members who are under the new plan are 1400 and the members who opt the promotional offer of HLW are 45% members. Here we present the new plan structure with the revenue generated from the new plan: Here we see that from the new plan HLW earns $ 515000. Although the no. of members are decreasing as we compare from the old plan but the revenue increases with the implementation of the new plan.
Part (b)
Comparison between Old and New Plan:
The planned change in the fee structure affected the revenues of HLW. Here we present the revenue from the old plan and the revenue under the new plan: The assumptions that we need to make for calculating the above figures are:We need to take the average of the court consumption as there need to be a standardised criterion for evaluation (Weygandt, Kimmel and Kieso, 2015). Either we can take the upper range or the lower range for the calculation of court fee.
Part (c)
Decision Making
The above analysis is all about the revenue structure of HLW as they want to change their revenue structure so we did a brief analysis and compared both the old and the new plan. The revenue derived from the old plan $ 323492 and the revenue derived from the new plan $ 515000. We can see that the revenues from the new plan are much better than the old plan. Hence we should accept the new plan of revenue and membership of HLW as it is more profitable.The key factors that we need to take into consideration are:
- The fall in the no. of members
- No court fee is there in the new plan.
Both the above factors we did consider in our analysis and they both have no major effect on our decision.
Conclusion:
The above case is about the acceptance of the new plan of revenue of HLW as they need a comparison between the revenue from the new plan and from the old plan. We did analyse both the plans and we came on to the conclusion that the revenue from the new plan are higher than the revenue from the new plan. Hence, they should implement the new plan.
|
Statement of Cost per unit (of activities listed)
|
|
Activity
|
Activity Cost ($)
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Annual Quantity of activity Driver
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Rate per unit ($)
|
|
Prepare annual Accounts
|
5,000.00
|
None
|
–
|
|
Process Receivables
|
15,000.00
|
5000
|
3.00
|
|
Process payables
|
25,000.00
|
2500
|
10.00
|
|
Program production
|
28,000.00
|
1000
|
28.00
|
|
Process Sales Order
|
40,000.00
|
4000
|
10.00
|
|
Dispatch sales Order
|
30,000.00
|
2500
|
12.00
|
|
Develop and test products
|
60,000.00
|
None
|
–
|
|
Load Mixers
|
14,050.00
|
1000
|
14.05
|
|
Operate Mixers
|
45,900.00
|
200000
|
0.23
|
|
Clean mixers
|
6,900.00
|
1000
|
6.90
|
|
Move mixture to filling
|
3,450.00
|
200000
|
0.02
|
|
Clean Trays
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20,000.00
|
16000
|
1.25
|
|
Fill trays
|
16,000.00
|
800000
|
0.02
|
|
Move to Baking
|
8,000.00
|
16000
|
0.50
|
|
Set up ovens
|
50,000.00
|
1000
|
50.00
|
|
Bake Cakes/Pastries
|
1,30,000.00
|
1000
|
130.00
|
|
Move to packing
|
40,000.00
|
16000
|
2.50
|
|
Pack cakes/pastries
|
80,000.00
|
800000
|
0.10
|
|
Cost per unit
|
268.57
|
|
Bill of Activities (Lamington)
|
|
Activity Consumed
|
Annual Quantity of Activity Driver
|
Cost per Unit ($)
|
Total Cost ($)
|
|
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 ovens
|
100
|
50.00
|
5,000.00
|
|
Bake Cakes/Pastries
|
100
|
130.00
|
13,000.00
|
|
Move to packing
|
2000
|
2.50
|
5,000.00
|
|
Pack cakes/pastries
|
100000
|
0.10
|
10,000.00
|
|
Dispatch sales order
|
500
|
12.00
|
6,000.00
|
|
Product Cost
|
64,297.50
|
|
Develop and test product
|
600.00
|
|
Total Cost
|
64,897.50
|
|
Annual Production (units)
|
1,00,000.00
|
|
Cost per Unit (Lamington)
|
0.65
|
|
Annual Membership Fees(Old Plan)
|
|
Individual
|
$ 45.00
|
|
Student
|
$ 30.00
|
|
Family
|
$ 100.00
|
|
Total Members
|
2000
|
|
Family
|
1000
|
|
Individual
|
500
|
|
Student
|
500
|
|
Peak Tennis Season
|
October to April
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Court fees
|
Average
|
|
Days
|
181
|
|
|
|
Capacity (5pm to 9pm)
|
90%-100%
|
$12 per hour
|
95
|
|
Capacity(9am to 4pm)
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50%-60%
|
$8 per hour
|
55
|
|
Off season
|
May to September
|
|
|
|
Days
|
184
|
|
|
|
Court Usage(Capacity)
|
20%-40%
|
$ 6 per hour
|
30
|
|
No. of Courts
|
10
|
|
|
|
Court Hours (per day)
|
12
|
|
|
|
Old Plan( Revenue)
|
Amount ($)
|
|
Membership Fees
|
|
|
|
Individual
|
|
22500
|
|
Student
|
|
15000
|
|
Family
|
|
100000
|
|
Court Fees
|
|
|
|
Peak Season
|
|
|
|
5pm-9pm
|
($ 12 per hour)
|
82536
|
|
9am-4pm
|
($ 8 per hour)
|
63712
|
|
Off Season
|
($ 6 per hour)
|
39744
|
|
Total Revenue
|
|
323492
|
|
New Plan (Annual Membership Fees)
|
|
Non Promotional (for complete year)
|
Amount ($)
|
|
Individual
|
300
|
|
Family
|
500
|
|
Promotional( for complete year)
|
|
|
Individual
|
250
|
|
Family
|
450
|
|
New Plan (Revenue)
|
Amount ($)
|
|
Membership Fees
|
|
|
Normal Offer
|
|
|
Individual
|
75000
|
|
Family
|
125000
|
|
|
|
|
Promotional Offer
|
|
|
Individual
|
112500
|
|
Family
|
202500
|
|
Total Revenue
|
515000
|
|
Old Plan( Revenue)
|
Amount ($)
|
|
Membership Fees
|
|
|
|
Individual
|
|
22500
|
|
Student
|
|
15000
|
|
Family
|
|
100000
|
|
Court Fees
|
|
|
|
Peak Season
|
|
|
|
5pm-9pm
|
($ 12 per hour)
|
82536
|
|
9am-4pm
|
($ 8 per hour)
|
63712
|
|
Off Season
|
($ 6 per hour)
|
39744
|
|
Total Revenue
|
|
323492
|
|
New Plan (Revenue)
|
Amount ($)
|
|
Membership Fees
|
|
|
Normal Offer
|
|
|
Individual
|
75000
|
|
Family
|
125000
|
|
|
|
|
Promotional Offer
|
|
|
Individual
|
112500
|
|
Family
|
202500
|
|
Total Revenue
|
515000
|
References
Edmonds, T.P., Edmonds, C.D., Tsay, B.Y. and Olds, P.R., 2016. Fundamental managerial accounting concepts.
McGraw-Hill Education.Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & Managerial Accounting. John Wiley & Sons.
