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Question: Discuss about the Financial and Management accounting. Answer: Activity based costing Activity-based costing is the methodology for allocating the overheads more precisely over those items actually used by the process. This method can be used for achieving target deduction in the overhead expenses (Bhimani 2012). It works best in the complex circumstance where many products and machines are there, processes are tangled and not easy for sorting out. On the contrary, it is not of much importance where the process of production is simple. ABC identifies the special training, machine set up, special engineering and other activities that generate costs and lead the company to the consumer resources. As per ABC the company computes the resource cost used under the activities (Bunn and Sapio 2015). Thereafter, cost of each activity is assigned only over the products that require the activities. ABC has become important in past few years as the manufacturing costs increased significantly, diversity with regard to the demands of the customer as well as the product has been inc reased significantly, the costs of manufacturing overheads do not correlate with the direct labour hours and productive machine hours anymore and few products are produced under large batches while other products are produced under small batches. Various advantages are there with regard to usages of ABC. These are Make or buy it provides the comprehensive view regarding each cost that is associated with in-house manufacturing of any product so that the company can precisely analyse which cost shall be eliminated if the product is outsourced and which cost can be carried on. Minimum price pricing is done for the product in such way that the market will be ready to pay and the marketing manager shall know the product cost before deciding the price of the product. It will assist the company to avoid the situation where the company will lose money due to high pricing of product. ABC helps to determine which cost is to be included under this minimum product price based on the circumstances under which the product is to be sold (Guerrero-Baena, Gmez-Limn and Fruet Cardozo 2013). Cost for production facility it becomes easy to differentiate the overhead cost at the level of production plant which in turn enables the manager to compare the production cost among various facilities (Linassi, Alberton and Marinho 2016). Customers profitability mostly the costs incurred by individual customers are product cost that includes the overhead expenses and other costs like handling of product return, high level of customer service and agreements for cooperative marketing. ABC method can sort through the additional overhead costs and may assist in determining which customer is earning the reasonable profit (Drury 2013). However, some issues must be taken into consideration before implementing the ABC system. These are Volume for cost pool though the ABC system produces information of high quality, it comes with the cost of various cost pools and cost of managing system increases with additional cost pools. For reducing these costs, ongoing analysis of cost shall be carried out with comparing the utility of each cost pool. Time for installation the ABC system is quite difficult to install as it may require multi-year installations where the company try to install this across all the facilities and products. Further, it is difficult to manage the high level budgetary support as time wasted without the completion of installations (Fathi and Elham 2015). Project basis generally the ABC projects are allowed on basis of the project so that the information is collected only once. Further, the information can be useful for the current operational situation of the company. Therefore, management may not authorize the funding for future ABC project. Separate data set the ABC system can rarely be constructed for pulling all the information it requires from general ledger directly. Rather, it needs the separate database that can pull the information from various sources and only one may be existed in the general ledger accounts. Therefore it becomes difficult to manage the extra database as it requires considerably additional staff time for which adequate budget may not be there (Langfield-Smith et al. 2015). Therefore, before implementing the ABC system all the above factors shall be taken into account. Computation of the per unit cost for listed activities based on activity drivers Activity Total activity cost Activity driver Quantity of activity driver Cost per unit of activity Prepare annual accounts $ 5,000.00 None available Process receivables $ 15,000.00 No. of invoices 5000 $ 3.00 Process payables $ 25,000.00 No. of purchase orders 2500 $ 10.00 Program production $ 28,000.00 No. of production schedules 1000 $ 28.00 Process sales order $ 40,000.00 No. of sales orders 4000 $ 10.00 Dispatch sales order $ 30,000.00 No. of dispatches 2500 $ 12.00 Develop and test products $ 60,000.00 Assigned directly to product Load mixers $ 14,050.00 No. of batches 1000 $ 14.05 Operate mixers $ 45,900.00 No. of kilograms 200000 $ 0.23 Clean mixers $ 6,900.00 No. of trays 1000 $ 6.90 Move mixers to filling $ 3,450.00 No. of cakes / Pastries 200000 $ 0.02 Clean trays $ 20,000.00 No. of trays 16000 $ 1.25 Fill trays $ 16,000.00 No. of cakes / Pastries 800000 $ 0.02 Move to baking $ 8,000.00 No. of trays 16000 $ 0.50 Set up ovens $ 50,000.00 No. of batches 1000 $ 50.00 Bake cakes / Pastries $ 130,000.00 No. of batches 1000 $ 130.00 Move to packing $ 40,000.00 No. of trays 16000 $ 2.50 Pack cakes / pastries $ 80,000.00 No. of cakes / Pastries 800000 $ 0.10 Inspect pastries $ 2,500.00 No. of pastries 50000 $ 0.05 Determining the per unit cost for Lamington and preparation of activity bill Activity Cost per unit of activity Annual quantity Total cost per activity Process receivables $ 3.00 500 $ 1,500.00 Process payables $ 10.00 200 $ 2,000.00 Program production $ 28.00 100 $ 2,800.00 Process sales order $ 10.00 400 $ 4,000.00 Load mixers $ 14.05 100 $ 1,405.00 Operate mixers $ 0.23 30000 $ 6,885.00 Clean mixers $ 6.90 100 $ 690.00 Move mixers to filling $ 0.02 30000 $ 517.50 Clean trays $ 1.25 2000 $ 2,500.00 Fill trays $ 0.02 100000 $ 2,000.00 Move to baking $ 0.50 2000 $ 1,000.00 Set up ovens $ 50.00 100 $ 5,000.00 Bake cakes / Pastries $ 130.00 100 $ 13,000.00 Move to packing $ 2.50 2000 $ 5,000.00 Pack cakes / pastries $ 0.10 100000 $ 10,000.00 Dispatch sales order $ 12.00 500 $ 6,000.00 Develop and test product $ 600.00 Total $ 64,897.50 Other costs Other costs that can be added to compute the cost of product for Lamington may include labour cost, product inspection cost, operational cost, material cost associated with the product. Budgeting Utilization of budgets for business decision evaluation Once the business becomes operational it is important to manage the financial performance of the company efficiently. Generating the process of budgeting is the most efficient way for keeping the business and finance on the track. Structured planning can create the actual difference with regard to the business growth and it enables the managers to concentrate on the resources for improving the profits, minimising the costs and enhancing the return on the investment (Lidia 2014). Key benefits for the business planning are that it enables the manager for creating the focus on the business direction and delivers the target that may help the business to grow. It also gives the opportunity for standing back and analyse the performance and the factors that are affecting he business. Planning the budget gives greater ability or making continuous improvements and solving the problems. It also gives the appropriate financial information that can provide the base for decisions which in turn cr eate greater confidence in the process of decision making (Silva and Jayamaha 2012). Further, various benefits of the business budget are as follows Helps in allocating the resources over the appropriate projects Helps in planning for the future Monitoring the performance Meeting the objectives Improving the decision making Increasing the motivation of the staffs Impact of the sales revenue Fee structure and new plan for membership Receipts of cash plays important role for measuring the cash sales or credit sales and analysing the cash flows. 2 major factors identified in HLW that have an impact on the cash receipts are the annual membership fees and court fees that are charged on hourly basis. Annual membership fees are the fixed fees and collected annually. Thus, the annual membership fees are constant and fixed receipt, on the contrary, the court fees charged on hourly basis ranges from $ 8 to $ 12 and vary on the basis of duration spent in the club, time of the day, season of the year, number of the customers and prime or non-prime time. Thus, it is not possible to accurately predict the receipt from court fees that are charged on hourly basis (Damanpour and Aravind 2012). Implementation of the new membership plan will enable the company to plan the cash in better manner as it will improve the cash flow management and draft the future plan for minimising the situation of shortages of cash. It will increase the probability of enhancing the profit with minimization of future as well as current debts. However, implementation of the new fees structure will not affect the overall profit. Implementation of the new plan the cash receipt plan of the company can be improved as the court fees charged on hourly basis are taken out and thereby the annual membership fees are only left for the purpose of charging. Therefore, the impacted on the receipt will be greatly reduced and as the membership fees charged on annual basis are fixed and constant, the receipts can be predicted (Weygandt, Kimmel and Kieso 2015). Further, the probability of cash loss generated from the court fees charged on hourly basis will be reduced after implementation of new membership plan. Thus, new plan implementation will improve the efficiency and enhance the HLWs ability for management of their cash and planning for the future decision. Impact of the sales revenue Receipts from the membership fees Particulars Amount Individual $ 22,500.00 Student $ 15,000.00 Family $ 100,000.00 Total $ 137,500.00 Receipts from court fees Particulars Amount Prime time $ 86,400.00 Non-prime time $ 56,000.00 Off season $ 21,600.00 Total $ 164,000.00 Total receipt from the 2 sources will be = ($ 137,500 + $ 164, 000) = $ 301,500. Computation of receipts after new plan implementation Receipts from membership fees will be New members = (2000 / 70%) = 1400 members Under in case of campaign Particulars Amount Family $ 141,750.00 Individual $ 78,750.00 Total $ 220,500.00 Receipts under no campaign Particulars Amount Family $ 192,500.00 Individual $ 115,500.00 Total $ 308,000.00 Total receipts under new implementation plan Particulars Amount Under campaign $ 220,500.00 Under no-campaign $ 308,000.00 Total receipts $ 528,500.00 It can be identified from the above calculation that the plan for fees collection or new membership plan will have effective and positive impact on processing and it will enhance the generation of revenue as the incremental revenue will be ($ 528,500 - $ 301,500) = $ 227,000. Effect of sales revenue from the planned change in fee structure: Analysis of the new fee structure and membership plan for rejecting it or adopting it For analysis, the following key factors were identified by HLW For analysing the membership plan entirely, HLW made various analyses on financial aspect like the company calculated the liquid ratios for analysing the liquidity status. Further, they also prepared the cash flow statement for controlling the available liquid funds. Moreover, they tried to maintain sufficient balance between the amount of cash inflows and outflows. For the purpose of achieving the target they also prepared the flexible budget and the statement for estimation of cash flows (McVay 2015). The HLW management recognized that the minimization of the administration cost after new membership plan implementation as the club will no more be required to prepare the revenue collection data on regular basis (Burns and Walker 2015). However, initially the plan may get adverse opinion from the management as they will face problem in collecting the membership fees. Moreover, the onetime fees may seem to be a burden for the members which in turn may reduce the number of members cons iderably. Further, as per the new membership plan the members required to pay the payment for entire year as the advance payment (Estampe et al. 2013). Therefore, as per the new policy onetime cash budgets is required to be prepared as the payment will be made once in the year. However, to execute the plan successfully effective cash management is required to be in place that includes controlling and managing the cash efficiently. It has been concluded from the above analysis that Activity based costing can be used for achieving target deduction in the overhead expenses. It works best in the complex circumstance where many products and machines are there, processes are tangled and not easy for sorting out. ABC identifies the special training, machine set up, special engineering and other activities that generate costs and lead the company to the consumer resources. However, it is not of much importance where the process of production is simple. On the other hand, planning the budget gives greater ability or making continuous improvements and solving the problems. It also gives the appropriate financial information that can provide the base for decisions which in turn create greater confidence in the process of decision making. Reference Bhimani, A. 2012,Introduction to management accounting,Financial Times Prentice Hall, Harlow. Bunn, D., Koc, V. and Sapio, A. 2015, "Resource externalities and the persistence of heterogeneous pricing behavior in an energy commodity market",Energy Economics,vol. 48, pp. 265-275. Burns, R. and Walker, J., 2015. Capital budgeting surveys: the future is now. Damanpour, F. and Aravind, D., 2012. 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