Will HLW’s New Membership Plan and Fee Structure Improve Its Ability to Plan Its Cash Receipts?
The calculations that has been done demonstrates the cost of overhead involved in the production. The table also provides the details relating to the cost that are indirect relating to the productions of the lamington in order to distribute the same into the market. A vital element that is existing in this case study is that there are several amount of direct costs, which is obligatory in the production procedure, and the same has not been taken into the considerations in determining the cost of lamington. Direct cost are generally regarded as the cost that is distributed to the production of goods (Scott 2015). Direct cost forms the significant constituent of the manufacture course. No products can be manufactured without taking into the account the direct cost of the goods. The case study provides the evidences that direct is regarded as the vital component in the production of lamington therefore these cost cannot be ignored in the determination of the lamington product. The direct cost should be included in the production process. Apart from the direct costs, there are other cost that are also the part of the production procedure.
- Direct cost of the labour
- Expenditure related to the charges of freight inward
- Direct cost associated to the materials
The evidences that has been obtained from the case study suggest that the HLW has generated revenue through the help of individual resources, which can be determined on the basis of the membership fees generated from the court (Schaltegger and Burritt 2017). In addition to this, the revenue that has been derived is based on the annual membership of which 40 per cent of the revenue is subtracted from the total sum of amount that is generated inside two months of the time. Furthermore, the remaining part of the balance is generated from the court fees that is based on the yearly income.
An important consideration of the fact is that the remaining amount generated from the court fees is not identical for each year (Warren and Jones 2018). Evident whenever there is a high peak time for business, the cash flow from the court fees turns out to be higher and it is estimated that the revenue increases by 45 per cent. Commencing from the months of May to September the revenue significantly declines by 15%.
The new plans of membership that has been proposed by the HLW is regarded as the vital aspect in determination of the total revenue derived. Significantly the around 80% of the total amount of the revenue is generated in the first month of the accounting year. In agreement with the new plans, it is anticipated that HLW would be able to obtain numerous benefits and the same has been listed below;
- In order to implement the new plans of membership HLW would be in the position of deriving the benefit of the higher number of cash flow, which could be generated from the operational sources during the accounting year on the application of the new plan. Hence, if this is regarded as the current plan then the club would be required to reliant on the individual programs (Henderson et al.2015). The programs are based on the fees based on hour, which would help in obtaining the revenue of 50% of the amount.
- On implementing the new plan, it is regarded as the programs of benefit for HLW at the time of preparing the adequate amount of cash flow during each month of the accounting year.
- On the implementation of the new membership plans, HLW would be able to obtain the benefit of the administration of club and this may enable the club to generated a higher percentage of revenue i.e. 80%. Such plans would be offering greater amount of benefit than the six months’ plans (Beatty and Liao 2014). Hence, the advantage that is generated from the accumulated funds is in respect of the financial decision forming the part of the development.
Estimate the Effect on Sales Revenue Resulting from the Planned Change in Fee Structure for the Next Financial Year
The study presently highlights numerous problems surround the current situation of HLW. Furthermore, taking account of the issue that has been highlighted assumptions are undertaken that can reflect the effectiveness of the current plans of the membership based on the revenue that has been generated (Macve 2015). There are assumptions that are stated below;
- A noteworthy consideration relating to the increasing the revenue is making a full use of the court on the circumstances when the business hits the highest time.
- On the arrival of the semi-lean season, it is vital to use around 60% of the court.
- On the arrival of the lean season a recommendation can be stated which would require making 40% of court use (Jiang, Wang and Xie 2015).
The calculations that has been performed portray the impact of the new plans of new membership plans and effect on the current sales. This can be done by making use of the systematic method in regard to the above defined assumptions that are as follows;
Annual Membership:
The computation that has been done provides that the court would be able to produce sales revenue in respect of the current plans of the membership which is evidently demonstrated below;
An impact created on the sales and cash flow is depicted with the help of calculation that is stated below;
In agreement with the calculation that has been done presents that the sales revenue of the HLW has significantly increased. According to the computation that has been done presents that the new plan that has been adopted for HLW evidently provides that would be able to generate sufficient amount of revenue making the optimum utilization of the court during the season when it is peak and during the season when it hits lean (Reid and Myddelton 2017). The revenue is in agreement with the current proposed plans of the membership that has been proposed. In addition to this, the calculation that has been done shows that in agreement with the current plans of the membership HLW would be in the position of generating higher amount of sales in respect of the months of October.
The assumptions that has been done relating to the sales revenue is associated with the new plans, which is in respect of the greater amount of profit from the earlier plans (Wild 2015). The main objective of selecting the appropriate element of the new plan is the generating higher amount of revenue. There are below listed factors that are helpful in justifying the analysis are as follows;
- An evidence from the analysis provides that the fees from the membership that is generated under the new plan would provide the HLW with higher instances of previous plans. In respect of the assumptions that has been done the new plans would help in increasing the revenue (Dutta and Patatoukas 2016). Furthermore, there are some of the students that would not be able to adjust themselves with the new plans and as a result of this they might not be able to adjust under new fee structure. It is necessary to obtain the feedback of the members under the new plans of membership.
- On applying the new plans, the management of the HLW would be able to gain the benefit of collecting a higher amount of fees (Trotman, Carson and Gibbins 2015). The management is additionally required to maintain the periodic records in order to keep track of the revenues collected in the wider manner.
- In the early months of the application of the plan, the management may face the situation of losing some of their members however, when the business hits the peak time the management would be able to gain higher amount of revenue (Waegenaere, Sansing and Wielhouwer 2015).
Conclusion:
On the conclusive note, the study has been able to contribute to the understanding that application of the new method of costing would help the managers in generating higher amount of revenue. The application of the new plans of membership is beneficial for the management as this would help them in generating higher amount of revenue and get the better understanding of the cost that is associated with the new plans. Conclusively the method of activity based costing is regarded as the best method of determining the cost and profit associated with the business.
Reference List:
Beatty, A. and Liao, S., 2014. Financial accounting in the banking industry: A review of the empirical literature. Journal of Accounting and Economics, 58(2-3), pp.339-383.
Dutta, S. and Patatoukas, P.N., 2016. Identifying Conditional Conservatism in Financial Accounting Data: Theory and Evidence. The Accounting Review, 92(4), pp.191-216.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.
Jiang, J., Wang, I.Y. and Xie, Y., 2015. Does it matter who serves on the Financial Accounting Standards Board? Bob Herz’s resignation and fair value accounting for loans. Review of Accounting Studies, 20(1), pp.371-394.
Macve, R., 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision, Tool, Or Threat?. Routledge.
Reid, W. and Myddelton, D.R., 2017. The meaning of company accounts. Routledge.
Schaltegger, S. and Burritt, R., 2017. Contemporary environmental accounting: issues, concepts and practice. Routledge.
Scott, W.R., 2015. Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.
Trotman, K., Carson, E. and Gibbins, M., 2015. Financial accounting: an integrated approach. Cengage Australia.
Waegenaere, A., Sansing, R. and Wielhouwer, J.L., 2015. Financial accounting effects of tax aggressiveness: Contracting and measurement. Contemporary Accounting Research, 32(1), pp.223-242.
Warren, C.S. and Jones, J., 2018. Corporate financial accounting. Cengage Learning.
Wild, J., 2015. Financial accounting fundamentals. McGraw-Hill Higher Education.
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