Managerial Accounting For Preschool Class and Birthday Party

Assignment Task

1. Computation of unit cost for Preschool Class and Birthday Party

Cost of single pre school class is computed as total cost divided by 1200 meetings per year = $324000 / 1200 = $270

Cost of single birthday party is computed as total cost divided by 150 parties held in one year = $13000 / 150 = $86.67

2. TRU is currently allocating the building related cost to only preschool program which cannot be recommended to be continued as this might result in inaccurate estimation of total cost for birthday party segment of the firm. TRU is making use of direct method for allocating the cost which is regarded as less accurate in the given scenario, therefore, the other method of cost allocation can be applied like activity based costing method. In this method, the activities with regard to each department will be determined according to which cost should be allocated (Altawati et al., 2018). It also defines the procedure with regard to how indirect costs should be allocated to birthday service department and pre school service department and thereby, helps in achieving more accuracy in cost allocation for every service provided. To effectively apply this method, some additional information is required like exact hours of labour spent on birthday party and pre school class, number of children who are attending birthday party and pre school class.

3. Excess capacity is defined as a situation when the demand for the services is substantially that the business enterprise is facing difficulty in deriving revenue (Cai et al., 2017). School building remained unused for 3 months. TRU can monetize this excess capacity by leasing out to other business firm or individuals who can fulfil their requirements. This will help in raising revenue and will enhance the income of the firm.

 4. The allocation method that is being used by TRU for allocating supplies, salaries and food can be regarded as appropriate. It is recently using direct cost allocation method that is primarily based on percentage of time for which every employee is engaged with specific service. This provide accurate picture with regard to actual cost of labour for the service associated. Therefore, on the basis of number of days per week and number of hours spent by employees on services, their respective cost gets allocated and likewise, on the basis of number of children who are attending the class and the birthday party, the supplies and food related cost is calculated.

5. TRU has not made a good decision by not allocating the cost of advertising to either of the segment of business as it avoids true or accurate cost of either of the two services from being realised. Moreover, non – allocation of advertising expenses may lead to fraud or inefficiencies in operations. As similar to the building related costs, the firm must begin with allocation of advertising cost using the activity based costing method (Jalalabadi et al., 2018). By applying this method for the current financial year 2020 in which total 1350 services (1200 classes and 150 birthday parties) have been provided, sum total of advertising cost can be allocated at the rate of 89% (1200/1350*100) to the pre school classes segment and 11% (150/1350*100) to the segment of birthday party.

6. Computation of cost per class meeting and per birthday party under above mentioned assumptions

Cost of single pre school class is computed as total cost divided by 1200 meetings per year = $306140 / 1200 = $257.62

Cost of single birthday party is computed as total cost divided by 150 parties held in one year = $37860/150 = $252.4

7. Revised cost information can be used in a variety of ways by TRU in order to enhance the profitability of business. By conducting a careful analysis of the revised cost information, TRU would be able to gain understanding with regard to increased profitability that might result by offering pre school classes on a year round basis. Secondly, the firm can adjust its pricing structure to effectively account for the cost of both types of services, which, for birthday parties is actually higher than it was initially computed. By making a record of actual costs that are linked with every service and making adjustments in their prices accordingly, it would be able to undertake effective decisions regarding the long term future and therefore, success of the firm (Laney, 2017). It can utilise revised cost information to establish more dependable and accurate budgets for future time period and can efficiently analyse benefits and costs of future related expenditures whether they belong to supplies, food, advertising or some employee related decisions.

8. The average revenue earned per class has been increased from $240 to $270 as the cost per pre school class has been computed as $270. If $240 is charged, then the firm would become a loss making firm. Also, it is working towards developing and initiating new and creative ideas into the classroom. It is considering to buy neighbourhood school in order to expand its operations. It has hired one other teacher to effectively cover classes along with two administrative assistants in order to carry out operations in an efficient manner. All this has led to the increase in cost and thereby, leading to the rise in prices charged for one class.

9. With the expansion of operations, TRU needs better and more effective control system that will help it in achieving better control practices. Access control systems have become popular in the recent few years with largely deployments being small and covering isolated areas of a site (Nolan et al., 2016). These systems are regarded as effective in safeguarding the areas covered by them. For instance, TRU can take into consideration the programming of cards in which every individual is required to be enrolled separately on every system. With the interlinked solution enrolment required to be only at one location, the permitted areas are selected at the same time and modifications are immediately active. The same procedure can be followed when the card gets misplaced or lost and is required to be deleted. It simply requires to be removed or eliminated centrally and all the doors are subsequently secured from the misuse of such lost card. Moreover, snapshots of persons can be captured automatically by CCTV systems when they are denied or given access to the particular area (Costin, 2016). These can be shown to the persons to help them in negating security issues. By installing such control, TRU would be able monitor and secure all aspects of multiple or individual site within the campus. It can ensure that only right people have access staring from the front gate to the server room.

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