Types of costing and decision making

This document discusses the types of costing in managerial accounting and their relevance in decision making. It also explores the cost information relevant to buying appliances and the cost to be incurred for laundry. Additionally, it analyzes the decision to hire additional employees and the option to take rental place or existing home place. The document also includes a journal article critique on the management accounting system in two companies and its contribution to innovation.

HI5017
Managerial Accounting

Contents
PART-A......................................................................................................................................................3
Case study...............................................................................................................................................3
1. Types of costing and examples for at least three costing of business...................................................3
2. Identify the information relevant to the decision and information which are irrelevant to make
decision to buy appliance........................................................................................................................4
3. Cost to be incurred by Couple for the laundry and computation..........................................................4
1. Purchase of the Appliance (alternative 1)........................................................................................4
2. Self-Delivery service laundry (Given alternative-2)........................................................................6
3. Delivery laundry service (alternative 3)..........................................................................................6
4. Frank decision to hire additional employees? Computation.................................................................7
5. Option to take rental place or existing home place? Number of children to be served and additional
employees to be hired?............................................................................................................................8

Existing current location..........................................................................................................................8
Option B: Move to a larger facility........................................................................................................10
Part B: Journal Article Critique.................................................................................................................12
1. Given parts of the management accounting system in two companies and its relevance.......................12
2. Innovation process in firm described in article accompanied with the innovation that needs to be
organized to transmit new information and how MAS contributes to innovation process.....................14
3. 4 specific outcomes and lesson learned for the journal articles (Two outcomes)...............................15
References.................................................................................................................................................17

PART-A
Case study
1. Types of costing and examples for at least three costing of business
In organization, there are several cost incurred to operate the business effectively. However,
below are the following type of costing given as below (Biondi, Gulluscio, Rossi, A., and
D'Alessio, 2017).
Fixed cost: - This is related to the annual licensing fees charged on the business. It is fixed and
does not change with the changes in the production unit. The annual cost is $ 225 for the given
year.
Incremental fixed cost- This is the cost which is kept fixed but changes with the changes in time
and does not vary with the changes in the time. The incremental cost is related to $ 120 which
was incurred for the washer.
Variable cost: - This cost incurred on the production unit and vary accordingly. However, this
cost changes with the changes in the production unit. This could related to the changes in the rate
of the mileage which will be changed with the changes in the total derived unit in process
(Biondi, Gulluscio, Rossi, A., and D'Alessio, 2017).
2. Identify the information relevant to the decision and information which are irrelevant to make
decision to buy appliance
It is analyzed that there are following cost information which are used to assess the decision
making related to buying the appliance. However, cost related to investment, return on capital
employed and other factors are considered for the same.
 Initial capital investment to buy new appliance
 Cost related to the installation of the appliance
 Other operating cost

It is found that each and every alternative will have different total cost and operating cost. For
instance, self-delivery option will be having higher self-drive cost related to the time and
expenses incurred on the petrol (Chenhall, and Moers, 2015).
Irrelevant information
In the given scenario, there are several information which are considered irrelevant for the
selection of the particular option, such as cost related to the existing appliance, cost incurred for
the detergent and other delivery alternative cost. The qualitative intents of the last appliance will
be irrelevant to opt for the new option.
3. Cost to be incurred by Couple for the laundry and computation
1. Purchase of the Appliance (alternative 1)
Particular Detailed computation $
Incremental annual energy
cost
120+145 265
Depreciation SLM Charged depreciation
Depreciation cot of the
appliance (SLM)
Washer 420.00
Dryer 380.00
Installation 43.72
Delivery 35.00
Total cost (related to
appliance) 878.72.
109.84

Life term of the appliance 8
years
Annual depreciation charge =
$878.72/8 = 109.84
Detergent cost Annually 140
Total Cost annual $514.84

2. Self-Delivery service laundry (Given alternative-2)
Computation of the self-Delivery service laundry (Given alternative-2)
Particular Costing $
Self-service driving (6 miles a week*.56 per
mile *52 weeks)
174.72
Cloths laundering cost (8 per week * total 52
weeks = 416.00)
416
Detergent cost ($35 per quarter *4 = 140.00) 140
Total cost 730
3. Delivery laundry service (alternative 3)
The estimation of the delivery laundry service in altenative-3 is given as below.
Particular Detailed $
Cost of pickup and delivery charges 52 per month *12 624.00
Total cost 624.00

The total cost of the appliance to be incurred in the process would be $514.84,
The total operating cost to be charged in the process would be $730.72.
The total pickup and delivery cost for the appliance to be incurred in the process $624.00.
Therefore, it is inferred that the option incurring low cost is selected by Frank.
4. Frank decision to hire additional employees? Computation
It reveals the incremental analysis related to the hiring of the employees if more children are kept
in process.
Particular Detailed computation Amount
Revenue increased 3*$800 $2400
Reduced by
Additional employee costing $9.00 / hour * 40 hrs* 4.33
wks
$1558.80
Food cost $3.20*3*5*4.33 207.84
INCREMENTAL Cost $1,766.64
Contribution $633.36

It is found that Frank would be able to generate incremental revenue of $ 2400 when the
additional employees are taken.
The incremental cost of hiring employees would be $1,766.64.
Therefore, additional profit would be $633.36.
Decision
Therefore, it is inferred that Frank should hire additional employees as it will increase the overall
profit.
5. Option to take rental place or existing home place? Number of children to be served and
additional employees to be hired?
Existing current location
This shows the costing of the 6 children and 9 children to be served by Frank in his process.
Particular 6 children 9 children
Revenue (@ 800 per child) 4800 7200
Less: Expenses
Meals cost
($3.20 per child*5 days a week* no of child* 4.33 weeks)
415.68 623.52
License costs
($225.00/12)
18.75 18.75
Insurance costs 416.67 416.67

(5,000/12)
Cost of laundry ( alternative 1)
(514.64/12)
42.90 42.90
Depreciation Expenses
($79,500/25 years) = $3,180.00/12 = $265.00
265.00 265.00
Utilities expenses 50.00 50.00
Rent expenses 0.00 0.00
Employee costs 0.00 1,558.80
Total costs
Net income 3,687.67 4,321.03
If 6 children are accepted then profit would be $3,687.67
Incremental revenue generated by Frank would be $2400 if additional employees are hired.
Costing of additional employees would be $1,766.64.
If the additional employees are hired then the profit would be $633.36.

Therefore, Frank should accept the offer of hiring additional employees.
If 9 children are served then additional employee costing $ 1766 would be incurred and I will
result to profit of $2400
Option B: Move to a larger facility
This option include serving higher number of children by taking the big place.
Particular 12 children 14 children
Revenue (@ 800 per child) 9,600 11,200
Less: Expenses
Meals cost
($3.20 per child*5 days a week* no of child* 4.33 weeks)
831.36 969.92
License costs
($225.00/12)
18.75 18.75
Insurance costs
(5,000/12)
416.67 416.67
Cost of laundry ( alternative 1)
(514.64/12)
42.90 42.90
Depreciation Expenses 0.00 0.00

Utilities expenses 125.00 125.00
Rent expenses 650.00 650.00
Employee costs
($9/hour x 40 hours/week x 4.33 weeks/month=1,558.80*2 and
*3)
3,117.60 4,676.40
Total costs 5,202.28 6,899.64
Net income 4,397.72 4,300.36
It is found that if 12 children are served then profit would be $ 4397.
If children are kept 14 then profit will reduced to $4,300.36.
Therefore, it is inferred that only 12 children should be served by Frank if he wants to have
higher profit (Collis, and Hussey, 2017).
Part B: Journal Article Critique
1. Given parts of the management accounting system in two companies and its relevance
Management accounting includes the provision and preparation of information related to statics
and finance to the managers of the business. This includes the internal systems that are used by
an organization to evaluate and measure the management process. This is not regulated by the
law and helps in internal decision making. Both non-monetary and monetary information is
included in management accounting. This information will help the managers to take managerial
decisions. Periodic reports are the result of managerial accounting. These reports are confidential
and internally used by business managers. These reports help the company to run the company in

a more efficient manner. The management accounting system helps the management to plan
business activities. It is also helpful in overcoming the constraints at an early stage and avoid
loss. The management accounting process aids to tackle the direction, planning, controlling and
decision making. In Apple and Canon, the management accounting system includes three
components (Curry, Hersinger, and Nilsson, 2019).
1. Performance management system
It includes the set of practices that help the organization to improve the performance. In
management accounting system, performance management plays an important role. This is
helpful in the periodical assessment of the performance. This analysis helps the organization to
determine whether the performance is able to achieve the business goals or the performance is
lagging somewhere. It helps the managers to identify any presented deficits in the system. This
helps to improve the performance of the organization, employee retention and overcome the
communication barriers. It reduces conflicts and saves time. It offers self-assessment
opportunities to the employees (Gibassier, and Schaltegger, 2015).
Due to the declining performance of the Canon in the early 1970s, it is necessary to bring new
things and ideas. This help the company to counter the risks from Xerox. This also helps the
company to face the situation of providing a cheap and valuable solution for small offices. This
presented that in canon, management leaders were committed to achieving long term visioning
goal by developing a new performance system (Hopper, and Bui, 2016).
2. Risk management system
A risk management system helps the organization to identify, assess and control the threats. The
risk management system includes plans, strategies, policies, and processes to reduce harm. The
basic risk management plan includes identification of risk, analysis of the risk, evaluation or
ranking of the risk, treatment of the risk, monitoring the risk. This helps the organization to
achieve goals and objectives. Risks can reduce the efficiency of operations.it helps to determine
ownership and accountability. It reduces the liability possibilities. It helps to improve business
performance and reduces operational losses (Jamil, Mohamed, Muhammad, and Ali, 2015).

In management accounting system, identification of risks and threats is the basic step which is
further followed by the collecting and analyzing data at a larger extent. Timely identification and
analysis of data help the management of the company to determine what can affect the progress
of the company. This help the organization to identify and manage the alternate resources.in the
case of Canon Company, issue identification is related to the risk identification that can result to
harm or can be enormously expensive for the Canon (Järvinen, 2016).
3. Strategic management system
This component of the management accounting system is helpful to create a blueprint. This
blueprint helps to improve the quantitative and qualitative aspects by making technical decisions.
This delivers a framework for decision making. This system is a collection of the processes and
ongoing activities that can be used by the organization for the alignment of the resource with the
business goals. The strategic management system is responsible to study the latest and existing
technologies and trends in the market to provide a long-term benefit to the organization.
The success of less costly Mac computers by Apple is an example of the strategic vision of the
company. The company worked to achieve the visionary goal. This also showed the high
commitment of the team members in the process of development and design (Laudon, and
Laudon, 2016).
2. Innovation process in firm described in article accompanied with the innovation that needs to
be organized to transmit new information and how MAS contributes to innovation process.
As an end result of the process of social interaction, an innovation created new information in the
given example. The innovation process refers to the translation of new or existing ideas into
marketable solutions. Innovation cannot be possible to achieve without proper social interaction.
By the analysis of the following information, management accounting helps in the process of
innovation (Maas, Schaltegger, and Crutzen, 2016).
a) It helps in the fast issue identification management process. This makes the management team
more alert and allows them to take the decision to cop up with the disruptions by analyzing
various threats (Maskell, Baggaley, and Grasso, 2016).

b) It collects the data of products and processes. This data helps in the identification of problems
and issues.
c) The management accounting system also requires ideas that are developed by the new and latest
interactive process. This helps in the validation and to take decisions on the basis of these inputs.
d) Management accounting system produces reports that involve industry and economic trends.
This information of trends can be helpful for the management to determine new ideas and new
social interactions (McLean, McGovern, and Davie, 2015).
e) To generate new ideas and the implementation and settlement of the process of innovation, the
management accounting system plays an important role. Development of the new benchmarking
and new technology is not possible with the collaboration of management accounting system.
f) In Canon, the innovation includes the redesign of the product and in the case of Apple, the
innovation involves the development of the completely new product. In both cases, the
management accounting system played a vital role (Mirzaey, Jamshidi, and Hojatpour, 2017).
3. 4 specific outcomes and lesson learned for the journal articles (Two outcomes)
The outcomes of this research are given is below:
a) Before the revolution of Silicon Valley, Japanese firms already established profitable product
lines. These firms employed formalized manpower. However, these firms required to bring and
innovate new techniques and technology that help these firms in rapid growth. This required to
give preference to the new ideas and innovation process (Otley, 2016). In the example of Canon
company, if the aim is to develop a better idea rather than focusing on the existing one, then it
could be more beneficial for the company. The MC project of the Canon Company is an example
of hoe improved social interaction can aid in effective research (Quattrone, 2016).
b) Although the creation of chaos was not the purpose. This includes the creation of an environment
to develop better ideas rather than being chaotic. Arguments can generate creative ideas and
sometimes these ideas can be a combination of multiple ideas and thoughts. It should be
understood by the participants of the environment and the management team that the
management of the company should be capable enough to convert thoughts into reality.
Companies should work hard in the direction of innovation and giving shape to the thoughts and

ideas. Different Ideas should not be overlapped by different teams who are working upon them
(Schaltegger, and Burritt,2017).
c) The position of the leaders is highlighted by the current research. It is where the management of
the company is in pressure to bring new products and processes in less cost. The leader should
not behave autocratically in this chaotic situation. It was required to act as a system catalyst for
the company. Leaders should take help of innovation to handle the chaotic situation and critical
decision-making process. The understanding of the exact situation is required by the company to
avoid such chaotic situation as defined by Canon (Senftlechner, and Hiebl, 2015).
d) Capable but small core groups should be developed by the companies. These groups then will be
responsible for social interactions and help in the creation of new innovations by bringing out
new ideas and meanings. The high level of commitment should be demonstrated by these core
groups towards the achievement of goals. The organization should be self-organized so that they
will be able to develop and create more ideas without any hurdle.

References
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