Management Accounting Report: Cost and Decision Analysis Overview

This report provides a comprehensive analysis of management accounting principles. It begins by defining various cost types, such as variable, fixed, and opportunity costs, with practical examples. The report then distinguishes between relevant and irrelevant information in decision-making contexts, specifically regarding purchasing appliances. It further explores cost comparisons of different laundering alternatives, including services and purchasing appliances. A key section focuses on decisions related to hiring new employees and the financial implications. Finally, the report computes the net income under different scenarios of enrolling children in a daycare, providing insights into how these decisions impact profitability. The analysis incorporates cost calculations and interpretations to support effective decision-making in different business scenarios.

MANAGEMENT
ACCOUNTING.

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
PART A...........................................................................................................................................3
1. Types of cots with their individual example............................................................................3
2. Relevant and irrelevant information in context with purchasing of appliances.......................3
3. Cost of laundering from different alternatives ........................................................................3
4. Decision in relation to the hiring of new and additional employees........................................3
5. Computation regarding decision-making for enrolling more children...................................3
PART B............................................................................................................................................3
1. Different components of management accounting system and its importance in making
effective and efficient decisions...................................................................................................3
2. Contribution of the management accounting in the innovation process of the companies.....3
3. Lesson and outcome obtained from the given article..............................................................3
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
Management accounting is the partnering of the process of evaluation and
communication of the financial information to the internal users of the company. This accounting
helps in preparation of the internal reports so that it aids the users in decision making.
The present report is based on row different article and the first article will explain about
the different type of cost which incurred buy the business and also the relevant and irrelevant
information which is used for making the purchase decisions .
The second article will be based o apple computer and Canon Inc which will helps to
understand about the role of management accounting and it components in innovation process of
the company. The report will further explain about the result and outcome which can be obtained
from the articles for better and efficient understanding.
PART A
1. Types of cots with their individual example.
There are different types of costs which are ned to ascertain and consider by the business
in calculating the cost of their operations. These costs helps the business in taking corrective
measures which leads to controlling of any excess cost in order to earn sufficient amount of
profit. different costs which business needs to consider are as follows:
Variable cost:
This is the cost which changes with the change in level of production that is variable cost
is attached to the products which in includes cost of raw material, wages to workers, etc. are
considered under the category of the variable cost(Dekker, 2016). There is direct relationship
between the variable cost and the level of production. With increase in production, variable cost
also tends to increase.
For Example: Depending on the number of children, cost of meal will also changes as per
child meal cost $3.20 and with increasing number of child this will also tend to increase and
hence it can be considered s the variable cost.
Fixed cost
Fixed costs the cost which remains constant or fixed even when there is change in the
level of production(Ax and Greve, 2017). This cost remains constant while increasing or
decreasing the production level. This is considered to be the cots which business have to pay
whether they are performing any activity to produce the goods and services or not. Rent, Fixed

insurance premium, Taxes etc are some of the costs which comes under the head of the fixed
cost.
For example: Insurance premium cost of $ 3840 is considered to be the fixed cost which
the couple has to pay irrespective of the number of children they are enrolling into the day care
home.
Opportunity cost-
This is the cost which is the cost for the next best alternative. This can also defined as the
cost which is foregone for taking the advantage of the next best alternative(Nitzl, 2016). This
considered to be the essential in the entire management accounting as this helps the managers in
helping and aiding them in making the most useful and effective decisions for selecting the best
from various alternatives available by efficiently evaluating each and which is also capable of
achieving the organizational goal.
For example: The opportunity cost in their business relies on different alternatives
available with the couple for laundering their clothes. Say if the couple choose Red Oak for
laundering the clothes which cost for $52 per month than they have to foregone the another
benefit which might derived from using different alternative that cost $57.16. as this alternative
might giving different benefits which cannot be obtained from Red Oak. Hence, Forgone cost of
another alternative for first alternative is said to be the opportunity costs.
2. Relevant and irrelevant information in context with purchasing of appliances.
Relevant information is the information which concluded as very important and essential
for the business and is capable of helping the manger in decision making or contributing in
something useful and productive for the business(van Helden and Uddin, 2016). this information
will helps them in making most effective and efficient decisions regarding the purchasing of
washing appliances .
Relevant information also helps the couple in ascertaining them the cost of purchasing
appliances and also the gain which they can derived by owing the assets(Hall, 2016). This is
considered to be the capability and potential of the formation the is to affect the mind of the
person in aiding useful decisions.
The article consist of both the relevant and irrelevant information, relevant information
contained by the article regarding purchasing of the washing appliances is the cost ODF different
alternatives that is laundering clothes from Red Oak company, cost incurred fro mega mart. this

all information will helps the couple in ascertaining the cost and in which they can incur on
purchasing of appliances and efficiently comparing all the alternative they are able to make
decisions regarding purchasing of appliances effectively and efficiently.
For Example: If the couple opt for laundering the clothes from Red Oak company than
they have to pay for the cost of$50 per month which is not including the cost of any supplies or
transportation as compared to another alternative which includes these extra cost . Choosing
laundering through the launder than they have to pay the cots of $57.16 pert month.
Next alternative that is purchasing the own appliances I also includes the cots which they
have to pay further that is costs of depreciation, or any energy cost which ultimately increase the
overall cost of laundry. hence. This all information is considered to be the most essential or
relevant which helps them in making decision effectively and efficiently regarding purchasing of
appliances.
Irrelevant information:
This is the information which is not necessary in making useful and important decisions.
irrelevant information is basically considered equal to the unnecessary information and are also
not capable of aiding decision makers in making efficient decisions(Tappura and et.al., 2015).
For example; Information regarding licensing costs, insurance etc is not considered to be
more important in making decision regarding purchase of appliances.
3. Cost of laundering from different alternatives
The couple is having three different options which can be used for laundering the clothes
and they all having different costs.
 Laundering clothes through services of Red Oak company
Head/particulars Amount in ($)
Cost per month 52
 Laundering clothes through services of Mega mart
Head/particulars Amount in ($)
Laundering Clothes cost 34.64

transportation (conveyance) cost 14.55
Supplying expenses 11.72
Total cost of laundering 60.86
 Laundering of clothes by purchasing their own washing appliances
Head/particulars Amount in ($)
Cost of the dryer 380
Cost of the washer 420
Delivering cost 35
Additive accessories 43.72
Purchasing cost for the appliance 878.5
 Calculation of cost which coupe have to spend for laundering their clothes
Head/particulars Amount in ($)
Energy cost of the dryer 12.08
Energy cost of the washer 10
Per month depreciation charged 9.15
Laundering cost per month 31.24
Interpretation:
From the above table and computation of cost of different alternatives it can be computed
that laundering the clothe from Red Oak company will cost $52 for the couple and taking
services of Mega mart will cost them 60.86. Laundering from purchasing of own appliances will

cost $31.24 per month which is said to be lower compared to other two options, as this will e
asset for the company .hence it can be recommend that couple should buy their own appliances
as it will cost less compared to other two options and kt will also lead to be beneficial for the
couple in long run.
4. Decision in relation to the hiring of new and additional employees.
The couple need to identify that both the cases of hiring new employees or not hiring the
new employees and the profitability of both the situations. Below given is the calculation which
helps to ascertain the profitability of hiring new employees and also case for not hiring new
employees.
Calculation of Income for employing additional employees
particulars Amount in ($) Amount in ($)
Fee charged from day
care 7200
less: cost incurred
license cost 18.75
cost of new license 18.75
employment cost 1559
cost of meal 864
insurance 320 2661.5
Income 4420
Calculation of present net income of day care if they not employing the additional
employee
particulars Amount in ($) Amount in ($)
Fee charged from day care 4800
less: cost incurred
license cost 18.75
cost of meal 576
insurance 320 914.75

Income 3885.25
From the above calculation it can be identified that hiring new employees will result in
generation of more expenses for the couple as hiring of the new employee will incur cost of
$2661 whereas the cost incurred where they are not hiring new employees is $914. but in
addition to this if the firm will hire more employees than it will also result in generation of more
income as more employee can enhance business to charge hire fee for the students which will
leads to increase the income than compared to present situation where mo addition of employees
s being done. Hence, it is recommend that the couple to hire new employees in order to increase
their overall income of the business as it will also helps them, in increasing their profitability.
5. Computation regarding decision-making for greenling new students.
Net Income in case of 9 children
Particulars/Head
Amount in
($)
Amount in
($)
Fee charged from day care 7200
less: cost incurred
license cost 18.75
New license 18.75
employment cost 4676.4
Meal cost 864
Insurance expense 320 5897.9
net income 1302.1
Net income in case of 6 children
Particulars/Head
Amount in
($)
Amount in
($)
Fee charged from day care 4800
less: cost incurred
license cost 18.75

meal cost 576
expenses for insurance 320 914.75
net income 3885.25
Net Income in case of 14 Children
Calculation of net Income of day care in case of 14 children
particular
Amount in
($)
Amount in
($)
Fee charged from day care 11200
less: cost incurred
license cost 18.75
cost of new license 37.5
employment cost 7274.4
cost of meal 1344
utility cost 125
rent 650
insurance 416.7 9866.31
net income 1333.68
From the above calculation it can be interpreted that net income earned by the couple in
two different scenarios that is when they admitting different number of children in day care. The
net income which is generated by them when they admit 9 children in day care is $1302 and
$1333.68 when they admit 14 children's to day care. This implies by admitting more number of
children that they able to generate more income. Though expense also tends to increase.
In both the situation the income earned is less compared to the net income of current
situation of 6 students as in this they are earning $3885.25. hence it can be recommend that,
couple can continue wit their existing situation in order to earn higher profit and to generate
more income and also leads to effective controlling of the cost which will bring increasing
income benefits to the couple ad their business.

PART B
1. Different components of management accounting system and its importance in making
effective and efficient decisions.
Management accounting is the accounting which involves the partnering of the
evaluation and communication of the financial information to its internals user which helps them
in aiding decision making in most effective and efficient way. There are various components of
management accounting which are explained s follows;
Job costing system;
This is the system which involves calculation of the individual total cots of
manufacturing of each job or activity(Shields, 2015). this will help the managers in analyzing
the most effective job and also the job which is incurring excess cost in order to avoid the factors
which are causing excess cost and to take corrective measures which helps in controlling the cost
so that organisation can earn higher profit.
Price optimization system
This is the system which involve using of the mathematics model and tools in order to
identify the different levels of price at which consumers are demanding more and combining the
data with the cost information and the level of inventory so that they are able to analyses and
ascertain the entire process which will helps increasing and improving the profits(Bobryshev and
et.al., 2015). Apple computer and Canon inc bot are using this as component in order to identify
that how the customer will respond at different price levels of new product and through different
channels.
Cost accounting system
It is the system which is generally used by the companies in order to eliminate the excess
cost which is incurred by them on unnecessary activities so that they increasing the profitability
of the business (Chiwamit, Modell and Scapens, 2017). This is generally used for analyzing and
evaluating the cost of each activity and taking corrective measures to eliminate the excessive cost
so that they can earn more in long run. cost accounting will helps in monitoring and controlling
the cost of the organisation.
Example- Canon Inc is generally using the costing system and inventory management
system to track the record of their Mini copier inventory so that they can eliminate the excessive
cost which can be incurred by the company through under and inefficient utilization of the

resources, whereas apple Computer is also using price optimizing and job costing for their new
launch Macintosh also that they can know that how much product will demanded by the
customers and how much cost they have to incurred on the development of the particular
product.
2. Contribution of the management accounting in the innovation process of the companies.
Innovation is something through which company can bring something new into the
mark,rt either by innovating idea by using some new and innovative technology which is
capable of satisfying the needs and ants of the customer(Christ and Burritt, 2017). innovation
leads to increase the market share and also the customer base which will benefit the organisation
in ling run.
Management accounting and its components helps in innovation process of the company
as the components like cost accounting helps in ascertaining the product cost ad the cost which
they will incur in development of the new product so that decisions can made regarding the
product development in order to make the product cost effective(Tucker and Schaltegger, 2016).
With the helps of components of management accounting organization is able to make efficient
decisions which helps them, in controlling the cost and reduction of the unnecessary expenses
which will helps the firm in generating higher profits .
Management of the organisation are need to develop the efficient budget so that they ca
direct all the activities in particular direction as in development and innovation of any new
product will incur many different cost elements say cost incurred on market research, training
given to employees etc
For example: superior authority of the App,e computer have to use the updated
technology in order to develop the existing technology and which is supported by the
components of management accounting as it helps in allocation of many resources efficiently on
manufacturing of the product. whereas Canon Inc is using the components of management'
accounting in accumulating the product so that they can market the product cost effective and
can attract large number of customers towards their product which will ultimately resulted in
capturing larger share of the market and creating strong brand value.
3. Lesson and outcome obtained from the given article.
This article is considering the case studies of two different companies that is Apple computer
and Canon Inc and their innovation process and also the role of the components of management'

accounting-in their innovation process. The CEO of the Apple Computers having the leadership
qualities which will help them in achieving their goals effectively and efficiently.
Management accountants needs to learn the ability of the creative thinking so that they
can think of of different ways to earn more profits by making efficient decisions(Nielsen,
Mitchell and Nørreklit, 2015). They need to be creative and attentive so that they can make them
corrective actions in order to eliminate the excessive cost which incurred by them on the
business activities.
Also, management account have to be be confidential regarding the information of their
employees as the confidentiality will leads to motivate the employees and cretin of positive
environment and this will result in achievement of overall organizational goal by directing the
activities of employees towards goal.
Canon In's use the culture of including employees in decision making and give the chance
of giving their opinions that is the decentralized culture also leads to increase the ,motivation of
the employees and enhance them to work efficiently and effectively. This can be learned by the
management accounting from canon company(Shields, 2015). As they also involve the
employees of different departments in the development of mini copier so that they can also take
part in decision making and the most efficient decision can be made which make the product
more cost effective and also leads to achievement of organizational goal.
CONCLUSION
From the above report it could be concluded that management accounting and its
components plays crucial role in the organisation and also helps managers in making the most
effective and efficient decisions. The report has describe about the different types of cost that is
fixed costs , variable cost and also the opportunity cost . which can be incurred in their
organization and also the relevant and irrelevant information to the users of the information so
that they can make effective and efficient decisions regarding the purchase of washing
appliances.
This can also be concluded from second article about the role of management accounting
in the business innovation process and also the different ways which can be used to reduce the
cost or making te product cost effective and profitable for the business.