Calculations of Activity Based Costing

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 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 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:

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 company. 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.

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 consumed. 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:

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 company. Bill of material is prepared by all the manufacturing companies to assist them for various decision making process.

Bill of Activities

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 company. 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.

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.

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. 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:

Other Cost Evaluation

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:

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 plan.

Through, the calculations of the new plan from 1^st Oct to 31^st Sept, following calculations have been measured:

It explains that the total cash receipts have taken place into the position of the company in 1^st 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 1^st Oct itself and at the time of campaign, only registrations have been done.

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 now. 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.

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