Management Accounting Case Studies with Cost Analysis and Employee Hiring Considerations

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
Case of Douglas and Pamela
QNS 1: Types of cost
1. Fixed cost. These are types of costs whose value remain constant. They never
change however much production is varied. Examples of fixed costs are rent and
insurance premiums.
2. Variable cost is the opposite of fixed cost. Variable costs keep on fluctuating
depending on the level of production and output. Examples of variable costs include
labor costs. When more labor is needed, then the expenditure on labor is bound to rise.
3. Total cost=sum of cost production which is sum of fixed cost, variable cost, marginal
cost (Wamalarathma, 2011)
QNS 2: Determinant factors for purchase of new appliances
According to Collier (2015), it is important to consider other alternatives available in
place of purchasing new appliances. We are told that the Franks can outsource the
laundering services into the nearby laundering company. The Franks should therefore
evaluate which alternative is cheap between purchasing new appliances and
outsourcing the laundering service. Again the Franks have an option of laundering the
cloths by themselves. This option comes with additional costs of purchasing the
detergents and fabric sheets. The Franks should consider all the costs associated to
each option and then decide on the cheapest alternative.
The information about the old appliances which have already stopped working is not
necessary in this decision. The cost of the old appliances is a sunk cost and it is not
needed in making the decision of whether to purchase new appliances or outsource the
laundering services (Zsambok 2014). This is because the decision should be based on
the available alternative solutions to the problem at hand. The only information which is
important to this decision is the one that offers an option to solving the problem of
laundering the business’s cloths.

Management Accounting 3
QNS 3: Cost of laundering clothes and Red Oak.
First option: taking clothes to red oak laundry and dry cleaning co.
Cost= U$ 50 monthly.
Second option: taking clothes to Laundromat
Total cost incurred in doing laundry at Laundromat include;
Laundering cost=cost of washing clothes per week*number of weeks in a month
= U$ 8*4.33 =34.64 per month
Transportation=mileage rate*number of mile
=U$ 0.56 per mile*6 mile (to and fro) = U$ 3.36 per week.
Monthly cost=transportation cost per week*number of weeks in a month
= 3.36 per week × 4.33 weeks = $ 14.55 per month.
Detergent or fabric sheets per month = 1/4 cost of detergents subtracted from 3 months
= $ 35/3 = U$ 11.66 per month.
Total monthly cost of washing at Laundromat will include all the costs that the day care
incurred, which include the following
Laundry cost =$ 34.64 per month
Transport = $ 14.55 per month
Detergents = $ 11.66 per month
Total monthly cost = U$ 60.85
Third option: Day care buying of appliances
The third option is for the duo-Douglas and Pamela Frank to purchase and install their
own washing machine I the day care premises. In execution of this plan, they need to

Management Accounting 4
think about the initial expense and the implication of new equipment on power
consumption.
I have compiled a cost analysis of this case and shown below.
The cost utilities like electricity cost are included in calculations.
Costs
Washer: $420
Dryer: $380
Carriage: $35.
Installation: $43.72.
Electricity bills costs
The dryer will cost $ 145 per year in terms of energy consumption. In 8 year, the total
energy consumption is equal to the cost of energy multiply by 8 years.
$ 145 × 8 years = $ 1 160
The washer will cost $ 120 per year in terms of energy consumption. In 8 years, the
total energy consumed equal to the cost per month times 8 year which is equal to;
$ 120 × 8 years = $ 960
The electricity cost of energy consumed for the period of 8yr = sum of energy consumed
for 8yrs i.e.
= $ 1 160 + $ 960= $ 2 120
The total cost of buying and installing laundry equipment are as below
Washer $ 420
Dryer $ 380
Installation costs $ 43.72
Carriage $ 35