Cash Flow Analysis & Business Planning

This assignment focuses on the crucial role of cash flow analysis in effective business planning. Students are tasked with analyzing a hypothetical situation involving two distinct business plans. The objective is to compare and contrast these plans, paying particular attention to their projected cash flows and identifying which plan would generate greater cash for the business.

Running head: MANAGEMENT ACCOUNTING
Management Accounting
Name of the Student
Name of the University
Authors Note
Course ID

1MANAGEMENT ACCOUNTING
Executive summary:
Management accounting can be defined as the process that is used in the preparation
of the management reports along with the accounts that provides timely and correct
understanding of the financial information to the managers. The information would help the
managers in taking the short and long term decisions. Alternatively, financial accounting
helps in offering information to the financial users which assist in appropriate functioning of
the business operations. The primary objective of the management accounting in business is
to assist in projection of future profits and making necessary make or buy decisions. In
addition to this, management accounting uses several types of tools with the objective of
forecasting the business trends which includes the ratio analysis, MIS, KPI and financial
modelling. The present case study is based on the explanation of the two methods namely the
management accounting and the cost accounting along with the cash flow analysis.
Cost accounting assist in the computation of the cost involved in the sale of goods that
is manufactured by implementing numerous techniques or the methods. In the first part of the
case study the primary objective of the report is to determine the cost of overhead in
computing the product cost. On assessing the numerous techniques, it is noted that ABC
method of costing assist in allocation of overhead along with the determination of the product
cost in an accurate manner. In the second part of the assignment it is concerned with the
analysis of the cash flow so the potentiality of the new plan can be determined.

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Table of Contents
Assessment task Part A:.............................................................................................................3
Answer to requirement 1:...........................................................................................................3
Answer to Requirement B:.........................................................................................................3
Answer to requirement C:..........................................................................................................4
Assessment Task Part B:............................................................................................................5
Answer to requirement A:..........................................................................................................5
Answer to requirement 2:...........................................................................................................6
Sales revenue under the current plan:........................................................................................6
Annual membership revenue:....................................................................................................7
Total amount of Court Fees:......................................................................................................7
Total amount of Sales Revenue generated:................................................................................7
Sales revenue under the new membership plans:.......................................................................8
Impact on Sales Revenue and Cash Flow:.................................................................................9
Requirement 3:...........................................................................................................................9
Conclusion:..............................................................................................................................10
References and Bibliography:..................................................................................................12

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Assessment task Part A:
Answer to requirement 1:
Activity
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
Answer to Requirement B:
Bill for the Activities:

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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
Answer to requirement C:
As evident from the above stated table a representation of the overhead cost is
demonstrated and there are indirect costs that offers a lending support to the process of
productions or alternatively the distribution purpose (Cost 2016). Additionally, there are large
number of indirect costs that is required to be cited in the case study however the same has
not been incorporated. Direct cost can be defined as those cost which is originates from the
production of any goods and service that is provided. Direct cost is regarded as the important
factor that is used in the production costs however there are circumstances where the

5MANAGEMENT ACCOUNTING
manufacturing of products is not possible without occurring any related costs (Hemmer and
Labro 2016). Hence, to compute the product cost of Lamington, it is vital to include the direct
costs which is provided below
a. Direct cost of labour
b. Direct cost of materials
c. Charges of Freight Inward
Assessment Task Part B:
Answer to requirement A:
As evident from the case study, it is observed that HLW derives revenue from two
different sources namely the revenue from the yearly membership and revenues from the
court fees. As a result of this, more than 40% of the total amount of income is derived from
the yearly membership for the period of two months. Taking into the consideration the
remaining balance part, it is derived from the court fees for every year based on annual basis.
In addition to this, the inflow of cash from the court fees does not remain even each month
(Prasad 2014). During the time when the business hits the peak time it is found that the
inflow of cash from the court feeds is high and it is greater than 45% of the total revenue. On
the other hand, in the months of May to September it is found that amount of fees collected is
lower since it covers 15% of the total amount of revenue.
In respect of the HLW implementation of the new membership plan, it becomes vital
to collect around 80% of the total sum of revenue inside the first month of the accounting
period. Furthermore, HLW will be able to gain numerous benefits which is listed below given
that HLW implement the new plan;
a. On applying the new plan HLW will be able to gain the benefit of the unrestricted
amount of cash flow from the operational sources as the once in a yearly membership.

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Taking into the considerations the present plan, the club is required to remain
dependent upon the individual programs such as the hourly fees of court for earning
the greater than the 50% of total amount of revenue.
b. Applying the new plan would turn out to be beneficial for the HLW in preparation of
the platform which would help the club in producing the steady amount of cash flow
for each month (Fullerton, Kennedy and Widener 2014).
c. On applying the new plan HLW would be able to gain benefit since the management
of club would be able to accumulate the greater than 80% of the total amount of
income in the early months in accordance with the new cash flow plans instead of
waiting for six completed months. Hence, the benefit would assist in preparing for the
correct utilization of the accumulated funds along with taking into the considerations
the different financial decisions whenever necessary.
Answer to requirement 2:
As evident from the case study there are numerous issues that is highlighted and as a
result of this there are certain amount of assumptions that is required to be made in gaining an
understanding of the impact of new membership plan on the sales (Mohanty 2014). Below
listed are some of the assumptions;
a. The usage of court is 100% during the peak business time
b. 60% of the utilization capacity during the non-prime time
c. An approximate of 40% of the court use should be made during the lean business time
Sales revenue under the current plan:
The below stated computation that is made in the determination of the impact of current sales
by making use of the systematic method by determining the previously stated assumptions

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Annual membership revenue:
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
Total amount of Court Fees:
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
Total amount of Sales Revenue generated:
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%

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Sales revenue under the new membership plans:
As evident, the club would be to derive the sales revenue in accordance with the new
membership plans as stated in the below stated tables;
Revenue from previous membership:
Particulars
Curren
t
Membe
r
% of
Continuatio
n
% 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
$1,41,75
0
Total Fees from Early
Membership
$2,20,50
0
Revenue derived from the general membership:
Particulars
Curren
t
Membe
r
% of
Continuatio
n
% 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
$1,73,25
0
Total Fees from
Normal Membership
$2,69,50
0
Total amount of Sales revenue derived:
Particulars Amount Weightage
Membership Collected:
August-September $2,20,500 34.45%

9MANAGEMENT ACCOUNTING
October $2,69,500 42.11%
March $1,50,000 23.44%
Total Membership $6,40,000 100.00%
Impact on Sales Revenue and Cash Flow:
The below stated tabular representations provides the impact on the cash flow and
sales revenue based 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
As evident from the computations made in the above stated table, an assertion can be
bought forward in this regard is that the sales revenue of the HLW has increased by
$2,87,332 given that they begin implementing the new plan in order to gain highest use of
court during the particular season. This is done by taking into the considerations the sales
revenue under the present plan (Velasquez, Suomala and Järvenpää 2015). Additionally, as
evident from the above stated computation that from the use of new plan, the club would be
able to make a collection of greater proportion of share for the anticipated amount of revenue
from sales in the month of October.
Requirement 3:
It is vital to understand that the revenue from sales under the new plan is regarded to
be higher in respect of the plans made in the earlier instances. The reason for this is that a
large number of factors is required to be dealt at the time of applying the new plan (Otley

10MANAGEMENT ACCOUNTING
2016). The below listed factors helps in providing the appropriate justification for the
analysis made;
a. As evident that fees from membership that would be derived from the new plan is
considered to be greater than the structure of fees that is stated in the previous
instances. As a result of this, it is anticipated that there might arise the loss of
members following the application of the new membership plan (Cooper 2017). In
addition to this, there are some students that are not dependent in terms of finance and
might not afford higher amount of fees along with the renewal of the membership
plans for the new structure of fees. Moreover, following the assessment of the
outcome, it is necessary to analyse the feedback that is obtained from the members.
b. By applying the new plan, the management would be able to collect the overall fees
for the starting period of two or three months (Cooper, Ezzamel and Qu 2017). In
such manner, management would be able to lessen the cost of assembling the
revenues from the court fees along with the preparation of the periodic records for the
revenues earned. Hence, it is vital to take into the considerations the costs reductions
during the process of evaluation.
c. Inside the tenure of six months, the management anticipates that they might lose few
members (Lavia López and Hiebl 2014). The management is required to apply the
new plans or else they might fail to achieve the anticipated amount of revenue.
d. It is noteworthy for the club to perform a special campaign so that it would be able to
promote the new plan. Additionally, the cost involved in the promotional campaigns
should be considered during the process of computing the net income along with the
cash flows generated from the application of the new plans.

11MANAGEMENT ACCOUNTING
Conclusion:
On a conclusive note following the end of report an assertion can be bought forward
by stating that the method of activity based costing is considered to beneficial. The numerous
business information required in the operation of business is stated in the report has been
appropriately complied. In addition to this, the activity based costing can be defined as those
cost of business that generally takes into the considerations the pros and cost of cost occurred.
It is noteworthy to denote that the method is easy to understand and analyse the current cost.
Considerably, it can be stated from the numerous studies that activity based costing is
advantageous since it helps the business owner in arriving at the understanding of making
correct decisions.
In the later part of the assignment it is concerned with the analysis of the cash flow
since it is used to help the managers in undertaking the decisions regarding the effectiveness
of the new plan in respect of the previous plan. Hence, the new plan would be able to
generate greater amount of cash for the business in comparison to the previous plan since the
plan forms the base of the cash flow analysis.

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References and Bibliography:
Almeida, A. and Cunha, J., 2017. The implementation of an Activity-Based Costing (ABC)
system in a manufacturing company. Procedia Manufacturing, 13, pp.932-939.
Bekaert, G. and Hodrick, R., 2017. International financial management. Cambridge
University Press.
Cooper, D.J., Ezzamel, M. and Qu, S.Q., 2017. Popularizing a management accounting idea:
The case of the balanced scorecard. Contemporary Accounting Research.
Cooper, R., 2017. Supply chain development for the lean enterprise: interorganizational cost
management. Routledge.
Cost, T.M.I., 2016. Cost and Management Accounting.
Dumitru, A.P. and Matei, C., 2014. MANAGEMENT ACCOUNTING AT THE
BOUNDARY BETWEEN CLASSICAL AND MODERN. Challenges of the Knowledge
Society, p.644.
Fullerton, R.R., Kennedy, F.A. and Widener, S.K., 2014. Lean manufacturing and firm
performance: The incremental contribution of lean management accounting
practices. Journal of Operations Management, 32(7), pp.414-428.
Hemmer, T. and Labro, E., 2016. Productions and Operations Management & Management
Accounting.
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.

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Mahal, I. and Hossain, M.A., 2015. Activity-Based Costing (ABC)–An Effective Tool for
Better Management. Research Journal of Finance and Accounting, 6(4), pp.66-74.
Mohanty, S.C., 2014. Institute to Provide Leadership in Cost and Management
Accounting. The MA Journal, 49(7), pp.7-11.
Otley, D., 2016. The contingency theory of management accounting and control: 1980–
2014. Management accounting research, 31, pp.45-62.
Petty, J.W., Titman, S., Keown, A.J., Martin, P., Martin, J.D. and Burrow, M.,
2015. Financial management: Principles and applications. Pearson Higher Education AU.
Prasad, A.D., 2014. Must Make Cost & Management Accounting Key to Building National
Competitiveness. The MA Journal, 49(8), pp.9-10.
Tappura, S., Sievänen, M., Heikkilä, J., Jussila, A. and Nenonen, N., 2015. A management
accounting perspective on safety. Safety science, 71, pp.151-159.
Velasquez, S., Suomala, P. and Järvenpää, M., 2015. Cost consciousness: conceptual
development from a management accounting perspective. Qualitative Research in
Accounting & Management, 12(1), pp.55-86.