AC4321 Management Accounting Case 2

Topics: Income statement, Cash flow, Rate of return Pages: 6 (1193 words) Published: September 25, 2014


AC4321 Management Accounting
S04 Group4

Hui Yan Shan 53034152
Kwan Mei Yee 53023082
Siu lai Kwan 52692231
SU Chingting 52480431
ZENG Mengyun 52639616
Zhou Yunqi 52638828

1.
CRC will improve its ability to plan its cash receipts. For the new membership and fee structure, it is more predictable in a sense that CRC get the prepaid membership fees at the beginning of the year. In addition, by using new membership and fee structure, cash receipts are also more certain. Since there are also a lot of variable factors that affect the cash receipts by using hourly court fees. 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, CRC’s 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 incurred. For example, cost of printing leaflets for the distribution. Projected return on investment and costs of loan: It is likely that CRC 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, CRC would invest to finance more income to the company, so CRC should estimate the rate of return for the cash invested. 2.b.

CRC 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 the 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 may 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...
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