Management Accounting Assignment



Management Accounting Assignment

Case 1: Belfield Sports Centre

The Belfield Sports Centre is a commercial sports centre on the outskirts of Dublin. It has recently been constructed at a capital cost of some €2 million and, for the first year of operations, the Sports centre has operated at a loss of €52,500. The Managing Director is anxious to find out in which Section losses have been incurred. He seeks your assistance and provides you with the following annual operating costs and estimates of their variability with respect to volume (number of members):

 

€'000

Lighting and Heat (100% fixed)

100

Repairs, maintenance, security, insurance (100% fixed)

100

Chemicals for swimming pool (100% variable)

12

Food, etc. for snack bar

40

Drinks, etc. for licensed bar

32

Interest and straight-line depreciation

160

 

444

Notes:

1. Half of the above staff is on temporary contracts; the remainder is permanent employees. The employer (Sports Centre must pay an additional payroll levy (PRSI) for its employees, amounting to 10% of basic salary. However, employer's PRSI only applies to permanent employees.

2. Light & Heat and repairs are to be apportioned on the basis of area occupied. Interest and depreciation is to be apportioned on the basis of capital cost.

 

Staff salaries

Capital Costs

Sales Revenue

Area Occupied

Additional information:

€'000

€'000

€'000

Sq. Feet

Swimming pool

42

700

200

1750

Gymnasium

16

400

28

750

Squash courts

8

200

54

250

Sports Hall

12

300

80

1260

Snack bar

20

200

120

320

Licensed bar

12

100

88

270

Administration offices

60

100

 

400

 

170

2000

570

5000

For each sector of the sports complex, we will identify the revenues and costs to arrive at the contribution to the complex's profits or losses. The staff salaries for each section are clearly given. Staff salaries are a direct expense for each department. The company's net loss (€52,500) is represented by € 570 000 Sales Revenue of the departments less the 178500 + 444000 = € 614000 expenditures in staff salaries and other expenses (lighting and heat repairs, maintenance, chemicals and food etc). The salaries calculation is presented under the following table:

Staff Salaries (excluding PRSI)

170000

Salaries for Permanent Employees

85000

Payment for PRSI

8500

Total Salaries for Permanent Employees

93500

Salaries for Contract Employees

85000

Total Staff Salaries

178500

Now the following table presents the section wise distribution of expenses.

 

 

 

 

 

 

 

 

 

 

 

 

 

Section

Sales Revenue

Area Occupied

Capital Costs

Staff salaries

PRSI

Lighting and Heat

Repairs etc

Chemicals for swimming pool

Food, etc. for snack bar

Drinks, etc. for bar

Interest and straight-line depreciation

Contribution to Profit or Loss

 

€'000

Sq. Feet

€'000

€'000

€'000

€'000

€'000

€'000

€'000

€'000

€'000

€'000

Swimming pool

200

1750

700

42

2.1

35

35

12

 

 

56

17.9

Gymnasium

28

750

400

16

0.8

15

15

 

 

 

32

-50.8

Squash courts

54

250

200

8

0.4

5

5

 

 

 

16

19.6

Sports Hall

80

1260

300

12

0.6

25.2

25.2

 

 

 

24

-7

Snack bar

120

320

200

20

1

6.4

6.4

 

40

 

16

30.2

Licensed bar

88

270

100

12

0.6

5.4

5.4

 

 

32

8

24.6

Administration offices

 

400

100

60

3

8

8

 

 

 

8

-87

Total

570

5000

2000

170

8.5

100

100

 

 

 

160

-52.5

(a) From the information provided, prepare a contribution format income for the first year of operations which shows the estimated revenues, contribution and profit or loss of each section of the Club, together with the overall performance of the club. You should state any assumptions made. (40 marks)

(c) Comment on the financial implications of increasing the prices in the snack bar and licensed bar by 10% which would result in a fall in sales in these two areas only of 5%. The turnover in other areas would remain unchanged. You may assume that the change in both light and heading costs and staff salaries are so insignificant that they can be ignored for the purposes of this calculation. (10 marks)

Increasing the prices in the snack bar and licensed bar by 10% would result in a fall of sales because customers have less to ...