Management Accounting Case Studies

Management Accounting 1
MANAGEMENT ACCOUNTING CASE STUDIES
By (Name)
The Name of the Class
Professor
The Name of the School
The City and State
Date

Management Accounting 2
Part A: Case Study Analysis
QNS 1: Types of Costs
There are various types of costs incurred by a business in the course of its operations.
Some of these costs are incurred once in the lifetime of the business while others recur
in intervals of, say monthly or yearly (Dunning, 2014). For the proposed childcare
business for the Franks, different types of costs will be incurred to start and run the
business. These costs include the following;
a) Fixed costs. These are business costs which are constant in the sense that they
are not affected by fluctuations in the level of production. They include constant
expenses for rent and are mostly paid monthly, quarterly or even yearly. For the
child care business, the annual license fee of $225 and laundry cost of $52 are
examples of fixed costs (Chenhall and Moers, 2015).
b) Operating costs. Operating costs are those costs incurred by the business
recurrently in the course of its daily operations. Such costs are not easily
traceable to the final product and are just treated as overheads cost to
production. A good example here will be the utility expenses incurred by the
couple to run the child care business
c) Variable costs. Variable costs are those costs, in which their volume depends on
the production level. They keep on varying with the varying level of production.
They are the opposite of fixed costs. They tend to increase when the level of
production increases and decrease when the level of production decreases
QNS 2: Information for Decision Making
According to Nebl (2018), the franks need to explore all the available information on the
purchase of new appliances. There are several options that the couple can utilize in
place of buying new laundering equipment. We are told that the Franks can outsource
the laundering services into the nearby laundering company. The couple should
therefore critically evaluate the cost of outsourcing laundering services and compare
such with the cost of acquiring new equipment. Also, the Franks have an option of
laundering the clothes by themselves. This option, however, comes with additional costs
of purchasing the detergents and fabric sheets. These items can be purchased by the
couple at an additional cost. The Franks should consider all the costs associated with
each option and then decide on the cheapest alternative (Collier, 2015).
The information about the old appliances which have already stopped working is not
necessary for this decision. This is because the cost of old appliances is a sunk cost
which is not needed in making the decision of whether to purchase new appliances or
outsource the laundering services. The decision of whether to buy new appliances or
outsource the laundering services should be based on the available alternative, which

Management Accounting 3
should be evaluated on the basis of cost-effective. For the couple to arrive at a decision
to this matter, they need to critically decide on the cheapest option (Zsambok, 2014).
QNS 3: Cost of Laundering Clothes
Option 1: taking clothes to Red Oak Laundry and Dry Cleaning Company.
Cost= U$ 50 per month
Option 2: taking clothes to Laundromat
The total cost incurred for doing laundry at Laundromat will be calculated as follows;
Laundering cost = the cost of laundry per week multiplied by the number of weeks in
one month = U$ 8*4.33 =34.64 per month
Transportation = mileage rate multiply by the number of miles
=U$ 0.56 per mile*6 mile (to and fro) = U$ 3.36 per week.
Monthly cost = transportation cost per week multiply by the number of weeks in one
month
= 3.36 per week × 4.33 weeks = $ 14.55 per month.
Detergent or fabric sheets per month = Quarterly cost of detergents divided by three
months
= $ 35/3 = U$ 11.66 per month.
The total monthly cost of laundry at Laundromat will include;
Laundry cost =$ 34.64 per month
Transport = $ 14.55 per month
Detergents = $ 11.66 per month
Total monthly cost = U$ 60.85
Option 3: Purchase of appliances
The last option available for the couple will be purchasing and installing their own
washing machines. However, there are several costs associated with this decision. All
the associated costs are analyzed and computed below;

Management Accounting 4
Costs
Washer: $420
Dryer: $380
Carriage: $35.
Installation: $43.72.
Power bills costs
The dryer will cost $ 145 per year in terms of energy consumption. In eight year the total
energy consumption will be the cost of energy multiply by eight years
$ 145 × 8 years = $ 1 160
The washer will cost $ 120 per year in terms of energy consumption. In 8 years the total
energy consumption will be the cost per month multiply by eight year
$ 120 × 8 years = $ 960
The power cost of energy consumption for eight years = sum of energy consumption for
eight years
= $ 1 160 + $ 960= $ 2 120
The total cost of purchasing and installing laundry equipment will be as follows;
Washer $ 420
Dryer $ 380
Installation costs $ 43.72
Carriage $ 35
Power bills $ 2 120
Total costs $ 2 998.72
The total cost for energy consumption and installation of the equipment for one month
will be calculated from the costs for the eight years, this will be arrived at by taking the
total costs for the eight years divided by the number of months in the eight years.
Energy consumption for one month = $ 2 998.72/96 months
= $ 22.08 per month.
The third option appears to be cheaper if the couple was not to consider the initial cost
of purchasing and installing the equipment. Although the initial cost for purchasing and
installing the laundry equipment will be too high, monthly expenses will reduce
drastically compared to other options. If the couple was to choose this option, then they