Cost Management Strategies and Practices

This assignment delves into the multifaceted world of cost management, analyzing its application in various industries. It examines case studies and research papers covering construction cost management, agile software development cost management, energy cost management, and strategic cost management. The focus is on understanding key concepts, challenges, and best practices employed to effectively control costs across different organizational contexts.

Running Head: Financial Management
1
Project Report: Financial Management

Financial Management
2
Executive Summary
This report has been prepared over 2 cases of activity based costing and budgeting.
Activity based costing case explains about the US bright product company which produces
cakes and pastries. This case explains about the total cost per cake and the production cost of
the company. Activity based costing method has been used to solve this case. In first section,
cost per unit has been calculated through dividing the total cost according to the cost drivers.
Further, bill of activities have been prepared and lastly, product cost for lamington and detail
about extra cost have been given.
In this case, Hawthorn Leisure Works is preparing a plan to enhance the cash inflows
of the company through making few changes in the membership plans and fess structure of
the company. This case explains that the budgeting is the main part to evaluate the
performance of the plan in near future.

Financial Management
3
Contents
Part A: Activity Based costing.........................................................................................4
Introduction...................................................................................................................4
Cost per unit of the company........................................................................................4
Bill of activities.............................................................................................................6
Product cost for lamington............................................................................................7
Conclusion....................................................................................................................7
Part B: Budgeting.............................................................................................................9
Introduction...................................................................................................................9
Improvement in the fee structure................................................................................10
Assumptions...............................................................................................................11
Evaluation...................................................................................................................12
Conclusion..................................................................................................................12
References.......................................................................................................................13

Financial Management
4
Part A: Activity Based costing
Introduction:
Activity based costing is the costing method which assists the management of the
companies to evaluate the activities which a company performs and then assigns the indirect
cost to each product accordingly. This case explains about the US bright product company
which produces cakes and pastries1. This case explains about the total cost per cake and the
production cost of the company. Activity based costing method has been used to solve this
case. In first section, cost per unit has been calculated through dividing the total cost
according to the cost drivers. Further, bill of activities have been prepared and lastly, product
cost for lamington and detail about extra cost have been given.
Cost per unit of the company:
In this section of the case, cost per unit has been calculated through dividing the total
cost according to the cost drivers. Following is the calculations of the total cost per unit of the
company:
Calculations of Activity Based Costing
Activity
Activity
cost Activity driver
Annual
quantity
Cost per
unit
Prepare annual cost
$
5,000
Process receivable
$
15,000 No of invoices
$
5,000
$
3.00
Process Payable
$
25,000 No of purchase orders
$
2,500
$
10.00
Program Production
$
28,000
No of production
schedules
$
1,000
$
28.00
Process sales order
$
40,000 No of sales orders
$
4,000
$
10.00
Dispatch sales order
$
30,000 No of dispatches2
$
2,500
$
12.00
1 Robin, Cooper. Supply chain development for the lean enterprise: interorganizational cost
management. Routledge, (2017).

Financial Management
5
Develop and test
products
$
60,000
Assigned directly to
products
Load mixers
$
14,050 No of batches
$
1,000
$
14.05
Operate mixers
$
45,900 No of kg
$
2,00,000
$
0.23
Clean mixers
$
6,900 No of trays
$
1,000
$
6.90
move mixture to filling
$
3,450 No of cake
$
2,00,000
$
0.02
Clean trays
$
20,000 No of trays
$
16,000
$
1.25
Fill trays
$
16,000 No of cake
$
8,00,000
$
0.02
Move to baking
$
8,000 No of trays
$
16,000
$
0.50
Set up ovens
$
50,000 No of batches
$
1,000
$
50.00
Bake cakes/ pastries
$
1,30,000 No of batches
$
1,000
$
130.00
Move to packing
$
40,000 No of trays
$
16,000
$
2.50
Pack cakes/ Pastries
$
80,000 No of cake
$
8,00,000
$
0.10
Inspect pastries
$
2,500 No of pastries
$
50,000
$
0.05
$
268.62 3
The above calculations explain about the total cost of cake per unit through dividing
the total cost according to their activity driver. Cost per unit of the company is $ 268.62 that
depicts that if the company produces one cake than it would cost $ 268.62 to the company4.
2 Keith, Potts and Ankrah Nii. Construction cost management: learning from case studies.
Routledge, (2014).
3 Dutch Fayard. "Interorganizational cost management in supply chains: Practices and
payoffs." Management Accounting Quarterly 15.3 (2014): 1.
4 Zulkefli Mansor. "Issues and Challenges of Cost Management in Agile Software
Development Projects." Advanced Science Letters 22.8 (2016): 1981-1984.

Financial Management
6
Further, it also assists the company to make decisions about the production and the pricing of
the product through concerning the cost per unit of the cake.
Bill of activities:
Further, bill of activities have been prepared of cakes and pastries of the company...
Bill of activities is the list of various functions which are performed by the company while
producing a unit of the product and services which is associated with the total cost of the
resources that has been consumed5. Basically, bill of material is used by the manufacturing
and construction companies to manage the performance, production and the pricing of the
products. Following is the calculations of the Bill of activities of the company:
Bill of Activities
Activity consumed
Annual
quantity
of
activity
driver
Cost per
unit
(According
to driver)
Total
amount
Process receivable 500 3.00 1500
Process Payable 200 10.00 2000
Program Production 100 28.00 2800
Process sales order 400 10.00 4000
Load mixers 100 14.05 1405
Operate mixers 30000 0.23 6885
Clean mixers 100 6.90 690
move mixture to
filling 30000 0.02 517.50
Clean trays 2000 1.25 2500
Fill trays 100000 0.02 2000
Move to baking 2000 0.50 1000
Set up ovens 100 50.00 5000
Bake cakes/ pastries 100 130.00 13000
Move to packing 2000 2.50 5000
Pack cakes/ Pastries 100000 0.10 10000
5 Manuela, Sechilariu, Wang Bao Chao, and Locment Fabrice. "Supervision control for
optimal energy cost management in DC microgrid: Design and simulation." International
Journal of Electrical Power & Energy Systems 58 (2014): 140-149.

Financial Management
7
Dispatch Sales order 500 12.00 6000
Develop and test
product 600 600
64897.50
Annual Production 100000.00
Cost per unit 0.65
The above table explains about the total cost per unit of the products. The total cost
per unit of cakes is $ 0.65 which explains that the $ 0.65 worth of resources is associated with
the total production of the company. Through these calculations, it has been explained to the
company that the total bill of material of the company is $ 0.65 per unit. Bill of unit makes it
simple for the companies to make various quick and better conclusions about the operations,
pricing and the changes in the production function of the company6. Bill of material is
prepared by all the manufacturing companies to assist them for various decision making
process.
Product cost for lamington:
At last, other cost has been evaluated which could be used by the companies to
manage the production and the cost of the company. Through the evaluation on company and
the total cost and bills of material of the company, it has been found that the most of the cost
particulars have been used by the management of the company to calculate the cost per unit.
But the annual cost has not been added by the company and this could make an impact over
the total cost and the profit of the company7. Thus, it is suggested to the Lamington to add the
annual cost in the production cost to calculate the perfect cost of capital of the company.
Otherwise, the total profit of the company would be affected.
Conclusion:
6 Jean-François Henri, Boiral Olivier, and Roy Marie-Josée. "Strategic cost management and
performance: The case of environmental costs." The British Accounting Review 48.2 (2016):
269-282.
7 N. V. Gryshchenko, Serebryakova N. A., and Syroizhko V. V. "Мethodology of cost
management business organization in conditions of instability." В книге: Sustainable
economic development of regionsby L. Shlossman. Vienna (2015): 14.

Financial Management
8
Thus, through the above study, it has been evaluated that in case of Lamington, the
cost per unit of the company is $ 268.62 that depicts that if the company produces one cake
than it would cost $ 268.62 to the company. Further, the bill of material has been calculated.
Through these calculations, it has been explained that the total bill of material of the company
is $ 0.65 per unit. In addition, it is suggested to the Lamington to add the annual cost in the
production cost to calculate the perfect cost of capital of the company. The above evaluation
assists the company to make decisions about the production and the pricing of the product
through concerning the cost per unit of the cake.

Financial Management
9
Part B: Budgeting
Introduction:
Budgeting is a procedure to make a plan about the spending the money and receiving
the money in near future. Budgeting plan is prepared by every organization to evaluate the
total earnings in future as well as the total expenditure of the company. Budgeting makes it
easy for the organizations and the management of the company to make decisions about the
strategies, policies, operations, production of the etc.8 Budgeting is basically a plan to balance
the total income and the expenses of the company.
In this case, Hawthorn Leisure Works is preparing a plan to enhance the cash inflows
of the company through making few changes in the membership plans and fess structure of
the company. This case explains that the budgeting is the main part to evaluate the
performance of the plan in near future. Following is the current and future plan of the
company:
Total members 2000
Individual
$
45
Student
$
30
Family
$
100
10 courts each club
Hourly court fees
$
8 $ 12
Peak season:
Time 12 Hours a day
Capacity (Peak
Season) 90% 100%
(5 pm to 9
pm)
181 days (Oct to
April) 50% 60%
(9 am to 4
pm)
8 Andrew Yim. "Failure risk and quality cost management in single versus multiple sourcing
decision." Decision Sciences45.2 (2014): 341-354.

Financial Management
10
Off Season 20% 40%
$
6
New plan (Annual
fees :)
Individual
$
300 50% are family
Family
$
500 25% are students
25% are
individual
Promotional
Campaign
Individual
$
250
Family
$
450
45% of current members have opted for new plan from existing members
Rest 55% are using the same monthly plan
Improvement in the fee structure:
Firstly, in this section, it has been evaluated that whether the new membership plan of
the company would be able to enhance the cash receipts of the company. Following is the
calculations of the present structure and the future plan of the company:
Present cash flow estimations of the company
Total number Cash Inflow
Revenue:
Members 2000
Individual $ 90,000
Family $ 2,00,000
Student $ 60,000
Off Season $ 1,05,98,400

Financial Management
11
Peak Season $ 3,88,06,400
Total cash inflow $ 4,97,54,800
Future cash flow estimations of the company
Total number Cash Inflow
Revenue:
Members 900
Individual $ 1,35,000
Family $ 2,25,000
Promotional
Campaign 500
Individual $ 62,500
Family $ 1,12,500
Total cash inflow $ 3,60,0009
The above calculations explain that the cash flow timing of new project would be
better but the total cash inflow of the company would be lower a lot in case of new plan as
the main income of the club is from hourly rates and the new plan would be a barrier in the
hourly fees of the company thus the present plan is way better than the current plan10.
Assumptions:
Through, the calculations of the new plan from 1st Oct to 31st Sept, following
calculations have been measured:
Future cash flow estimations of the company
Total number Cash Inflow
Revenue:
9 Jay B Barney. Gaining and sustaining competitive advantage. Pearson Higher Ed, (2014).
10 G. S Klychova. "Management aspects of production cost accounting in horse
breeding." Asian Social Science11.11 (2015): 308

Financial Management
12
Members 900
Individual $ 1,35,000
Family $ 2,25,000
Promotional
Campaign 500
Individual $ 62,500
Family $ 1,12,500
Total cash inflow $ 3,60,000
It explains that the total cash receipts have taken place into the position of the
company in 1st month (October month) itself according to the new plan. It has been assumed
that the promotional campaign amount has been taken by the management of the club on 1st
Oct itself and at the time of campaign, only registrations have been done11.
Evaluation:
According to the above evaluation over the project, it has been calculated that the new
plan must not be accepted by the company as it would not offer that much cash receipts to the
company as much as earn by the company right now12. The calculations on present case and
the future plan explain that the cash flow timing of new project would be better but the total
cash inflow of the company would be lower a lot in case of new plan as the main income of
the club is from hourly rates and the new plan would be a barrier in the hourly fees of the
company thus the present plan is way better than the current plan.
Conclusion:
Thus, through the above evaluation, it has been found that the new plan must not be
accepted by the company as it would not offer that much cash receipts to the company as
much as earn by the company right now.
11 P. Fraser Johnson. Purchasing and supply management. McGraw-Hill Higher Education,
(2014).
12 Robin Cooper. Supply chain development for the lean enterprise: interorganizational cost
management. Routledge, (2017).

Financial Management
13
References:
Barney, Jay B. Gaining and sustaining competitive advantage. Pearson Higher Ed, (2014).
Cooper, Robin. Supply chain development for the lean enterprise: interorganizational cost
management. Routledge, (2017).
Cooper, Robin. Supply chain development for the lean enterprise: interorganizational cost
management. Routledge, (2017).
Fayard, Dutch, et al. "Interorganizational cost management in supply chains: Practices and
payoffs." Management Accounting Quarterly 15.3 (2014): 1.
Gryshchenko, N. V., N. A. Serebryakova, and V. V. Syroizhko. "Мethodology of cost
management business organization in conditions of instability." В книге: Sustainable
economic development of regionsby L. Shlossman. Vienna (2015): 14.
Henri, Jean-François, Olivier Boiral, and Marie-Josée Roy. "Strategic cost management and
performance: The case of environmental costs." The British Accounting Review 48.2 (2016):
269-282.
Johnson, P. Fraser. Purchasing and supply management. McGraw-Hill Higher Education,
(2014).
Klychova, G. S., et al. "Management aspects of production cost accounting in horse
breeding." Asian Social Science11.11 (2015): 308.
Mansor, Zulkefli, et al. "Issues and Challenges of Cost Management in Agile Software
Development Projects." Advanced Science Letters 22.8 (2016): 1981-1984.
Potts, Keith, and Nii Ankrah. Construction cost management: learning from case studies.
Routledge, (2014).
Sechilariu, Manuela, Bao Chao Wang, and Fabrice Locment. "Supervision control for
optimal energy cost management in DC microgrid: Design and simulation." International
Journal of Electrical Power & Energy Systems 58 (2014): 140-149.
Yim, Andrew. "Failure risk and quality cost management in single versus multiple sourcing
decision." Decision Sciences45.2 (2014): 341-354.