Management Accounting Case

Management Accounting Case

These variable factors include peak hours, peak season and the sports trend (e. G. People may be suddenly more passionate in playing football in football match seasons). But for new membership and fee structure, these variations are eliminated. Thus cash receipts are not dependent upon variables. However, whether customers continue to renew their memberships depends on their own needs. 2. A. Before making the decision on whether the new membership plan should be adopted or rejected, Cars management should take into account some critical factors in its evaluation. The customers’ acceptance to the new plan:

The changes of the pricing policy directly affects the benefits of the members. The new membership plan will be favorable to active customers but worse-off to those who has low usage of courts as they are required to pay more in total under the new pricing arrangement. The attitude of the market should be carefully examined. The cost for making such changes to the membership plan. To make sure both the potential customers and current members are well noticed about the details Of the proposed membership plan, extra administrative and marketing costs on promotional purpose will be inevitably uncured.

For example, cost of printing leaflets for the distribution. Projected return on investment and costs of loan: It is likely that CRY has to borrow money in short term for various purposes, including spending on daily operating and purchases of non-current assets. Therefore, the company should notice about the anticipated borrowing cost for funding (I. E. Annual interest rate for loan) in the periods of cash shortages. On the other hand, having more idle cash on hand, CRY would invest to finance more income to the company, so CRY should estimate the rate of return for the cash invested. B. CRY should prepare at least four types of financial analyses to make a complete evaluation Forecast of future cash inflows and outflows: The budgeted cash flows provide information about the expected sources and uses of cash for various activities for future months. It should include the cash receipts and cash disbursements budgets. These details can reveal the expected revenue and expense in the form of cash. The evaluation should be based on this forecast to express how the new membership plan will influence the cash flow.

Company need to identify the risks or benefits that he new membership plan can bring about in term of ability to maintain liquidity. This forecast can satisfy this sort of need. Furthermore, company should do a complete plan for cash management for excess cash or cash shortage to avoid insolvency or improve the efficiency of exercising cash. Budgeted income statement: The budgeted income statement shows the expected revenue and expenses for the budgeted period. This budgeted income statement is an analysis special for this new plan.

Therefore, it should include interest revenue and expense due to the change in cash flow. There ay be some new expenses like aforesaid cost associated with plan changeover, which are generating by the new plan compared with old one. In addition, the budgeted revenue can also be divided into several items by classes. Cost-volume-profit analysis: This analysis shows the profitability Of new membership plan. It reveals the critical break-even point where the income equals to the expense. Company can do decision after knowing the expected profits or loss may be generated at certain number of membership enrollment.

This analysis not only sorts out the costs into fixed and variable sections but also helps manager to making an accurate decision about new plan. It can exclude irrelevant costs and help company to set a reasonable sales goal. 3 Current Model: Most of Cry’s memberships have Septet beer expiration, so substantial amount of the cash receipts of Annual Member Fee are collected in September. During peak season (September to April) there are large amount of cash receipts due to heavy court usage. Cash receipts reduce in spring and drop significantly in summer months.

New Model: Change of member structure: Scenario 1: Equal number of people will join the membership program from February to July. For the first year of instituting the new model, the same amount of annual member fees will be received from February to July. Starting from the second year of adopting the new model, the timing of cash receipts will change because for those who join the membership program during the promotion period (February and March) can enjoy 15 months service rather than 12 months for the first year.

CRY will receive a certain amount of cash in February and May, ;ice as much as that amount in June and July, and no cash from new members in March and April. Scenario 2: Promotion Campaign will attract more new entries so the cash receipt will mainly concentrate in June and July. Conclusion: No matter which assumption comes into reality, it is expected that there will be approximately three peaks of cash collection. In comparison to the current cash receipt model in which most Of the annual membership fees are collected in September, CRY will be able to collect cash more times over the year.

And the amount of cash receivable is more evenly distributed during the year. If the assumption of the new model is incorrect: overestimates the number of members that will continue with the club or the umber of new members cannot cover the loss of old customers less profits more members continue with the club than estimate (1) more profits (2) need to re-plan the capacity of court By implementation of the new membership plan, the cash flow could be predicted more accurately, because for each customer there will only be one- time collection instead Of repeatedly transaction under the old scheme.

Management team can have a more precise idea about when and how much the company will receipt cash, and can be aware of the cash condition of the company in different period. They can know exactly how much working UAPITA is at hand and available. Based on this information, company can plan for cash disbursement more accurate.

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