Cost Management and Accounting Principles

This assignment delves into the core principles of cost management and accounting. Students are tasked with analyzing fundamental concepts such as activity-based costing, cost goal specificity, and their impact on cost reduction performance. The assignment also explores the role of cost management in strategic decision-making within organizations. A comprehensive understanding of these principles is crucial for effective financial planning and control.

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

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Executive Summary:
The main objective of the report is to provide the management with the necessary projection
of future profits to make the necessary decision. The case study is based on the explanation of
the two important methods namely the cost accounting and the management accounting with
better understanding of the cash flow. The initial stages of the case study is based on the
determination of the overhead cost involved in the calculating the cost of product. The second
part of the study is associated with the determination of the cash flow from the application of
the new plans. The report would demonstrate the effectiveness of the activity based costing
techniques in the process of business decision making.

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Table of Contents
Answer to task Part A:...............................................................................................................3
Answer to requirement A:..........................................................................................................3
Answer to requirement B:..........................................................................................................3
Answer to requirement C:..........................................................................................................4
Answer to part B:.......................................................................................................................5
Answer to requirement A:..........................................................................................................5
Answer to requirement B:..........................................................................................................7
Sales revenue under the new scheme of membership:...............................................................8
Effect on sales revenue and cash inflow:...................................................................................9
Answer to Requirement 3:.......................................................................................................10
Conclusion:..............................................................................................................................11
Reference List:.........................................................................................................................12

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Answer to task Part A:
Answer to requirement A:
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:
Illustrations for Bill of Activities
Activity Consumed Annual
Quantity of
Activity
Driver
Cost per Unit of
Activity
Total Cost

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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

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Answer to requirement C:
As evident from the illustration of the computations that has been performed above an
important consideration in this regard is that the overhead cost is quantified. Evidences from
the calculations have stated that there are indirect costs that offers their support to the process
of producing or alternatively in the procedure of allocation (Renz, 2016). Additionally the
indications from the calculations have represented that there are large sum of indirect cost
that are considered as the part of the cost however the indirect costs that are occurred have
not yet been incorporated. Direct cost are regarded as those costs, which can be assigned to
the product cost of the specific goods and services (Zeff, 2016). There are certain costs that
are regarded as the part of the direct cost namely the depreciation costs and the administrative
expenditure. These costs are regarded as the difficult to distribute and therefore there are
considered as the indirect costs.
Direct costs are treated as those costs that primarily originates from the production of
goods and services in which the firms is dealing (Clinton & England, 2016). They are
regarded as the important element of the production process however there are some are some
situations where manufacturing of goods and services cannot be done with incurring any
direct cost. In order to arrive at the cost of production of the lamington, it is necessary to take
account of the indirect costs and these costs are stated below in the tabular format
a. Costs originating from the freight inward
b. Direct cost associated with labour
c. Direct costs associated with materials

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Answer to part B:
Answer to requirement A:
On viewing the circumstances from the case study, it is understood that the amount of
revenue that is derived by the HLW are largely from two different bases. The sales revenue
that is generated by HLW is particularly from the yearly subscription of membership and the
revenue that is derived from the court fees (Morden, 2017). Accordingly, there are greater
than 40% of the total amount of sales revenue that is generated from the yearly membership
fees for the period of two months. On considering the remaining part, it can be inferred from
the case study that revenue generated from the court fees is based on yearly basis.
To be very specific the cash flow that is generated from the court fees generally
remains uneven in every month. An important assertion in this regard is that whenever the
business is experiencing the peak time the revenue that is derived from the court fees
multiplies double fold and significantly increases by 45% of the total sales (Schuster, 2015).
Furthermore, commencing from the period of May to September the instances obtained from
the case study has suggested that the amount of court fees has fell down significantly and
yields as low as 15% of the total sum of sales revenue.
In the current state of affairs of HLW on applying the newly proposed plans of
membership, it is understood that the scheme has yielded approximately 80% of the total sum
of sales income inside the first month of the financial year (Mohanty, 2014). In addition to
this, HLW would be able to gain benefit of the increased revenue and these benefits are stated
below;
a. With the application of the new plans, HLW is in the position of gaining the
advantage of the greater increases in the cash flow that would be generated for the

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operational sources and yearly subscriptions to the memberships (Klychova et al.,
2014).
b. On the considering the current stated plan, the club is under obligation of remaining
reliant on the single schemes of generating fees such as the hourly fees that is
generated from the court would ultimately increase by 50% of the total amount of
anticipated revenue from the application of new plans.
c. With the application of the new improved plan, the HLW would be able to generate
revenue that would enable the club in generating greater volume of cash in every
month (Otley, 2016).
d. The application of the new plan would be considered to be beneficial for the club as
the managers of the club would be able to gain more than 80% of the total revenue
during beginning phases of the implementation rather than waiting for the completion
of six months (Cooper, 2017). Because of this benefit would enable management of
the club in making an appropriate use of the accumulated funds by taking account of
the several accounting decisions as and when required.
Answer to requirement B:
The evidences that has been obtained from the case study evidently provides that
there are several number of issues and because of this there are some specific number of
assumptions that is needed to be made (Malmi, 2016). These assumptions would enable in
gauging into the effect that is created by the new plans of membership. The necessary
assumptions are listed below;
a. Full use of the court should be made by the management of the club during the high
business hours
b. Sixty percent of the utilization capacity must be made when the business is not
running in in the peak time.

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c. It is assumed that that the management to resolve the issue must make around forty
per cent of the overall usage of court during the lean business hours (Lanen, 2016).
Sales under the present plan:
The proposed sales plan is stated in the below computations that would help in
understanding the impact that is created through systematic method of ascertaining the
assumptions that has been made previously;
Yearly membership revenue:
Total sum of court fees:

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Total sum of sales revenue generated
Sales revenue under the new scheme of membership:
The club under the new scheme of membership would be able to generated sales
revenue in the following manner;
Revenue from the earlier plans of membership:
Revenue generated from the general membership plans:

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Total sum of sales revenue generated:
Effect on sales revenue and cash inflow:
A tabular representation is stated below that assess the effect created on the cash flow
and sales revenue depending upon the periodic sales:
The above stated table evidently provides that the sales revenue that is generated by
the HLW has subsequently increased by $287,332 given the circumstances that they
commence the application of new plans, which would enable them in gaining the greater
usage of court during the peak business time (Andersen et al., 2015). The projection of the
sales revenue is carried out under the new plans. In addition to this, the computations in the

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above stated table provides that usage of new plans would enable the club in generating
greater amount of revenue from the sales during the month of October.
Answer to Requirement 3:
One of the important aspects of the new plan is to understand the sales revenue that is
generated is higher under the new plan than compare to the previous plans (Kang, 2015).
There are large number of reasons that is required to be taken into the considerations at the
time of implementing in the new plan (Datar & Rajan, 2016). The assumptions have been
stated below and provides an appropriate justification of the analysis that has been made;
a. As it is understood from the current fees of membership, the revenue that would be
derived from the structure of new fees will be higher than the previous plans.
However, there are assumptions that there might be a loss of members on the
application of new plan (Horngren et al., 2016). The loss is anticipated in the areas of
student as they are not self-dependent and they may not be able to afford greater
amount of revenue from the renewal of the membership under the improved fees
structure.
b. With the application of the new plans, the management is better able to assemble the
fees for the beginning period of two or three months as this would enable them in
reducing the cost of revenue collection (Tang et al., 2015). Additionally this would
also facilitated the members in preparing the records of revenue that would be
generated from the new plans. Therefore, it is obligatory for the managers in taking
into the account the cost that is involved in the process of assessment.
c. Within the tenure of six months, the management expects that the they would miss out
some of the members (Johnson, 2014). As a result of this the managers are required to
implement the new plans or else they might fail to attain the expected revenue.

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d. The club is also required to perform the special campaign for promoting the new
plans. The cost that is incurred in the promotional strategies must be included in the
determination of the net income together with the cash flow that is generated on
applying the new plans (Gopalakrishnan et al., 2015).
Conclusion:
On arriving at the conclusion, it is noteworthy to denote that the activity method of
costing is regarded as the beneficial method of determination of cost. There are several
noteworthy assumptions has been considered in this report and the same has been duly
complied with the necessary information. The report has provided sufficient understanding
that the activity method of costing is an important step forward in determining the actual cost
of product and decision-making. Therefore, the report has immensely contributed by stating
that the activity based costing is helpful for the business owners in better understating of the
business situations and taking necessary corrective actions for improving the operational
functions.

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Reference List:
Andersen, M. L., Zuber, J. M., & Hill, B. D. (2015). Moral foundations theory: An
exploratory study with accounting and other business students. Journal of Business
Ethics, 132(3), 525-538.
Clinton, B. D., & England, B. (2016). Principles of healthy managerial costing: a principles-
based approach to cost modeling would enhance the state of management accounting
and elevate its role in providing decision-support information. Strategic
Finance, 98(3), 40-46.
Cooper, R. (2017). Supply chain development for the lean enterprise: interorganizational cost
management. Routledge.
Datar, S. M., & Rajan, M. V. (2016). ACCT20053 Issues in Management Accounting:
ACCT20076 Foundations of Management Accounting. Pearson Education Limited.
Gopalakrishnan, M., Libby, T., Samuels, J. A., & Swenson, D. (2015). The effect of cost goal
specificity and new product development process on cost reduction
performance. Accounting, Organizations and Society, 42, 1-11.
Horngren, C. T., Datar, S. M., Rajan, M. V., Wynder, M. B., & Maguire, W. A. A.
(2016). Cost Management Systems ACCT2013, ACG25. Pearson Australia [for the]
University of South Australia.
Johnson, P. F. (2014). Purchasing and supply management. McGraw-Hill Higher Education.
Kang, M. (2015). Activity-based Costing Research on Enterprise Logistics Cost
Management. Business and Management Research, 4(2), 18.

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Klychova, G. S., Faskhutdinova, М. S., & Sadrieva, E. R. (2014). Budget efficiency for cost
control purposes in management accounting system. Mediterranean journal of social
sciences, 5(24), 79.
Lanen, W. (2016). Fundamentals of cost accounting. McGraw-Hill Higher Education.
Malmi, T. (2016). Managerialist studies in management accounting: 1990–
2014. Management Accounting Research, 31, 31-44.
Mohanty, S.C., (2014). Relevance and Utility of Cost and Management Accounting in the
Present Socio-Economic Scenario. The MA Journal, 49(1), pp.12-17.
Morden, T. (2017). Principles of management. Routledge.
Otley, D. (2016). The contingency theory of management accounting and control: 1980–
2014. Management accounting research, 31, 45-62.
Renz, D. O. (2016). The Jossey-Bass handbook of nonprofit leadership and management.
John Wiley & Sons.
Schuster, P., (2015). Cost and Management Accounting. In Transfer Prices and Management
Accounting (pp. 1-4). Springer International Publishing.
Tang, J., Zhang, M., Tang, H., & Chen, Y. (2015, April). Research on Cost Management of
Construction Project Based on Activity-based Costing. In 2nd International
Conference on Civil, Materials and Environmental Sciences. Atlantis Press.
Zeff, S. A. (2016). Forging accounting principles in five countries: A history and an analysis
of trends. Routledge.