Management Accounting Case Studies

This document contains case studies on management accounting, including analysis of fixed, variable, incremental, and sunk costs. It also explores different alternatives and helps in making informed decisions. Additionally, it discusses the impact of enrolment decisions on staffing and expenses. The document also includes a critique of journal articles on management accounting concepts.

Running head: MANAGEMENT ACCOUNTING CASE STUDIES
Management Accounting Case Studies
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1MANAGEMENT ACCOUNTING CASE STUDIES
Table of Contents
Part A: Case Study Analysis..............................................................................................2
Requirement 1:...............................................................................................................2
Requirement 2:...............................................................................................................2
Requirement 3:...............................................................................................................3
Requirement 4:...............................................................................................................3
Requirement 5:...............................................................................................................4
Part B: Journal Article Critique..........................................................................................5
Requirement 1:...............................................................................................................5
Requirement 2:...............................................................................................................6
Requirement 3:...............................................................................................................7
References and Bibliographies:.........................................................................................8

2MANAGEMENT ACCOUNTING CASE STUDIES
Part A: Case Study Analysis
Requirement 1:
The provided case includes examples of fixed, variable, incremental and sunk
costs. However, sunk costs are not considered, since they are not included at the time
of undertaking final decision (Ahmad 2014). Fixed costs are those costs that do not vary
with rise or decline in the number of products or services produced or sold. On the other
hand, variable costs are those costs that increase or decrease based on the changes in
the volume of production. Incremental costs are those costs, which are used in business
planning analysis for obtaining an overview of additional cost to the organisation, if a
specific action is undertaken (Alsharari, Dixon and Youssef 2015). The examples of
these three types of costs from the provided case mainly include the following:
Cost Specific Example
Fixed Annual license fee amounting to $225, since it would not change
irrespective of the activities of the couple
Variable The total amount gathered for child care at a rate of $800 per child
would vary proportionately with the variations in the number of
enrolled students
Incremental The increased cost of utilities, which is $50, is fixed. According to the
case information, there would be increase in each month owing to
the day care and thus, the number of children is not a factor, As a
result, this cost could be adjudged as incremental cost owing to the
change in cost of utilities due to day care.
Requirement 2:
It is necessary to differentiate between costs, which are relevant and irrelevant to
the decision of appliance purchase. The two issues inherent in this situation include
whether the cost would be incurred owing to the decision undertaken in future and
whether the cost could be differentiated from alternatives. The cost is deemed to be
relevant, when it fulfils a specific set of criteria. Therefore, if Franks decides to buy the
appliances, the relevant costs are stated as follows:
 New appliance cost
 Delivery cost related to new appliances
 Installation cost related to new appliances
 Additional utility cost
In case; Franks decide to investigate all the available alternatives, it is necessary to
take into account the difference in costs among the alternatives (Brewer and Stout
2014). Therefore, the below-stated costs would be relevant as well:
 Delivery cost and pick-up of laundry service
 Self-service laundry expenses like laundering, detergent and mileage
It is necessary to understand the costs already incurred not varying from alternatives
are not relevant to future decisions. The following costs are identified as irrelevant to the
decision of purchasing the appliances:

3MANAGEMENT ACCOUNTING CASE STUDIES
 Old appliance cost
 Detergent cost is not relevant, only if the available options do not take into
account delivery and pick-up services (Bromwich and Scapens 2016)
Requirement 3:
The previously detected relevant costs need to be used for ascertaining the most
feasible alternative. It is necessary to analyse the three possible alternatives. The first
option denotes the rental service from Red Oak Laundry and Dry Cleaning, the second
option is the Laundromat Service and the third alternative is the purchase of new dryer
and washer. For both the first option and the second option, there is no need for any
initial investment. However, the third option requires initial outlay in the form of washer,
dryer, installation and delivery charges associated with the appliances. The detailed
calculations of the three possible alternatives are represented in the form of a table as
follows:
Particulars Option 1 Option 2 Option 3
Initial Cost:
Cost of Washer $420.00
Cost of Dryer $380.00
Installation Cost $43.72
Delivery Charges of Appliances $35.00
Total Initial Investment $878.72
Operating Expenses:
Monthly Laundering Cost of Agency $52.00
Monthly Travelling Charges to
Laundromat $14.55
Monthly Laundering Charges in
Laundromat $34.64
Monthly Laundry Supplies for Laundromat $11.67 $11.67
Monthly Depreciation of Appliances $9.15
Additional Energy cost of Washer $10.00
Additional Energy cost of Dryer $12.08
Total Monthly Operating Expenses $52.00 $60.86 $42.90
Annual Expenses $624.00 $730.27 $514.84
Total Cash Out Flow $624.00 $730.27
$1,393.5
6
According to the above table, it could be seen that the total monthly operating
expenses for the third option is lowest among the three options followed by the first
option and the second option. The trend is similar for annual expenses as well;
however, the cash outflow would be greater for the third option compared to the other
two alternatives. Despite this, purchasing the appliances would be the most cost
effective option for the couple to launder clothes.
Requirement 4:
To,

4MANAGEMENT ACCOUNTING CASE STUDIES
Franks,
Date: 25th May 2019
Subject: Letter of recommendation
The provided situation needs to be evaluated with the help of incremental
analysis. More precisely, the incremental costs of undertaking changes have to be
evaluated in this case. The change in costs needs to be considered for additional staffs
along with feeding additional children. The additional number of children would result in
rise in revenue. Hence, the change in revenue has to be taken into consideration
(Chenhall and Moers 2015). The incremental changes are represented in the form a
table as follows:
Particulars Amount
Additional Number of Children 3
Revenue per Child $800
Incremental Revenue per Month $2,400
Number of employees 1
Labour Hour per week 40
Labour Charges per hour $9
Incremental Labour Charges per month $1,559
Food cost per day for each child $ 3.20
Number of days per week 5
Incremental food cost per month $208
Total Incremental cost $1,767
Incremental Profit per month $633
The incremental revenue obtained by enrolling additional three children, which is
$2,400, has exceeded the total incremental cost of additional staff and incremental food
cost for the additional children obtained as $1,767. Therefore, Franks would have net
benefit of $633, if it decides to exercise the option.
Requirement 5:
It is necessary to gain an insight that facility locations and enrolment decisions
are management decisions that need an understanding of the strategic goals (De Loo,
Cooper and Manochin 2015). This would assist in understanding the impact of
enrolment decisions on the number of staffs needed and additional food expenses. For
the two provided options, monthly income statements are prepared. The calculations
reveal that service for nine children would need one additional staff; service for 12
children would need two additional staffs and service for 14 children would need three
additional staffs.
Remain in Current Location:-
Particulars 6 children 9 children
Revenue $ 4,800.00 $ 7,200.00
Expenses:

5MANAGEMENT ACCOUNTING CASE STUDIES
Meals $ 415.68 $ 623.52
License $ 18.75 $ 18.75
Insurance $ 320.00 $ 320.00
Laundry $ 42.90 $ 42.90
Depreciation $ 265.00 $ 265.00
Rent $ - $ -
Utilities $ 50.00 $ 50.00
Employee $ - $ 1,558.80
Monthly net income $ 3,687.67 $ 4,321.03
Move to Larger Facility:-
Particulars 12 children 14 children
Revenue $ 9,600.00 $ 11,200.00
Expenses:
Meals $ 831.36 $ 969.92
License $ 18.75 $ 18.75
Insurance $ 416.67 $ 416.67
Laundry $ 42.90 $ 42.90
Depreciation $ - $ -
Rent $ 650.00 $ 650.00
Utilities $ 125.00 $ 125.00
Employee $ 3,117.60 $ 4,676.40
Monthly net income $ 4,397.72 $ 4,300.36
Based on the above findings, the feasible course of action needs to be selected
effectively. According to the outcomes of the computations, the most considerable
income in monthly income takes place when there are above six children. The income
difference among 9, 12 and 14 children is not considerable with only a diminishing
return point. If Franks decide to move to a larger facility by accommodating 12 children,
the monthly net income would be $4,397.72, which is higher than the other available
alternatives. Hence, Franks is advised to adopt this alternative for generating increased
monthly income.
Part B: Journal Article Critique
Requirement 1:
The management accounting concepts are concerned with three components,
which include planning, controlling, decision-making and strategy within the
organisations. Controlling could be defined as the effect of outcome and analysis for
ascertaining that the project could be controlled like process measurement and cost
irrespective of the acceptable limit. Secondly, planning is deemed to be a vital element
for the business and it needs to take place at all levels, which would aid in fulfilling the
goal of profit maximisation (Fullerton, Kennedy and Widener 2014). The strategy
development forms a significant part of the elements of management accounting and

6MANAGEMENT ACCOUNTING CASE STUDIES
the organisations tend to develop relationship between daily business activities as well
as strategic endeavours.
Canon Inc has made internal development of Mini Copier through re-
conceptualisation of the overall plain paper copier market and owing to this, the
introduction of the mini copier would need lower or no maintenance cost. Therefore, the
actualisation of Mini Copier was needed for managing the inverse association between
reliability and cost. The management of the organisation planned to resolve the
contradiction between reliability and cost (Nonaka and Kenney 1991). This implies that
the product cost arose owing to the enhancement in reliability and rise in service need
because of the cost minimisation. Therefore, the issue related to the mini copier is to
ensure improvement in the durability of drums and cleaners. In this new method, the
drum needs to be treated in the form of a module, which has been discarded after
making different numbers of copies and the outcome would be the copier development,
which would be devoid of maintenance (Juras 2014). The product development has
been revolutionised owing to the addition of capacity of Canon Inc.
The product development process of Apple has taken into account the elements
of the management accounting concepts. The aim of the organisation in the initial
period has been to revolutionise the Mac computers owing to the introduction of high-
priced machine and there has been incorporation of developed technology at Xerox
Parc. With the aid of consequent crystallisation and issue from the end of CEO of Apple
Inc, Mac has become self-organised, as optimisation could be observed between
software and hardware individuals (Nonaka and Kenney 1991). From the provided
information, it has been found that the Mac team has made some significant innovation,
which could not be reverberated across the organisation owing to the absence of
coordination between Mac and other Apple members. The new ideas have emerged
owing to the constant interaction between the members of the Mac team.
The controlling factor that Apple has used includes producing Mac inexpensively
through the set-up of a highly automated factor by setting low target price. The role of
the CEO for product development has been critical due to the issues engaged in the
development process (Kaplan and Atkinson 2015). Moreover, the process of decision-
making within the organisation has been improved owing to the role of the final arbiter
involved in making decision. The role of the individual in terms of product visionary has
lead to positive aspects. Hence, it has been determined that controlling and decision-
making have been the significant contributors in the development process.
Requirement 2:
Management accounting is a group of procedures that the managers use for
providing useful and valuable insights in monitoring, planning and decision-making
process (Lavia López and Hiebl 2014). In case of Canon, the innovation process
includes the recapitalisation of the overall plain paper copier, which has been developed
on human activity. The new solutions associated with the contradiction of Copier have
been brainstormed by collection of the project teams, which are outside the
marketplace. By interacting with individuals, the innovation evolved has been the drum
development in the form of module, which after learning different copies, need to be
discarded and this would make the copier free of maintenance.
In case of Apple Inc, the new features and ideas in developing the Macintosh
Computers have evolved owing to the constant interactions between the members of

7MANAGEMENT ACCOUNTING CASE STUDIES
the Mac team. The problems that the team members have created in developing
computers have stimulated the other members of the team in forming solution and thus,
it leads to problem-solving (Maas, Schaltegger and Crutzen 2016). Hence, Mac has
obtained differentiated design along with compact look. The resources have been
funnelled into the Mac project, which are later converted into vision of the real product
and the complex part of the project has been conceptualised by using metaphor and
analogies.
Requirement 3:
The product development is not same for Apple Inc and Canon Inc and even
differences could be observed in the innovation process as well. The product
development in the big Japanese organisation has been significantly different from the
Silicon Valley chaos. Apple Inc has experienced significant growth by the continual flow
of new entrepreneurs along with development of venture capital. On the contrary, the
growth at the Japanese organisation is marked by increasingly competitive market, in
which there is use of innovation for ensuring business growth (Malmi 2016). Hence, in a
rapidly growing economy, the organisations are needed to form an environment, in
which there has been transmission of new ideas across the organisation.
After this, it is necessary for the organisations to involve the management in
developing a situation, in which chaos could lead to creation of new information. This
could be formed via merger and acquisition programs. Thirdly, raw materials are used
for the theoretical projects owing to the innovation process. Hence, stress needs to be
provided on emergence and synthesis.
In addition, it has been found by analysing the case of Canon Inc that there has
been revitalisation of different product lines owing to the spin offs for developing mini
copier. Hence, the transformative ability of the organisation is adjudged as the strong
stimulus, which assists in propelling the organisation forward. Hence, the innovating
company needs to develop an environment resulting in the creation of transmit and
information along with amplifying the newly developed information by structuring the
entities (Messner 2016).
In the current era, the management accountants are deemed to be the decision
makers as well as providers of information since they assist in smooth conduction of
business operations (Nielsen, Mitchell and Nørreklit 2015). From the findings obtained
from the journal article, the organisations are needed to develop an environment, which
aids in development and generation of new ideas, which could be transmitted through
the organisations. The organisations have to understand that the accountant functions
need to be made by incorporating chaos into the research and development decision
(Pavlatos 2015).

8MANAGEMENT ACCOUNTING CASE STUDIES
References and Bibliographies:
Ahmad, K., 2014. The adoption of management accounting practices in malaysian small
and medium-sized enterprises. Asian Social Science, 10(2), p.236.
Alsharari, N.M., Dixon, R. and Youssef, M.A.E.A., 2015. Management accounting
change: critical review and a new contextual framework. Journal of Accounting &
Organizational Change, 11(4), pp.476-502.
Brewer, P.C. and Stout, D.E., 2014. The future of accounting education: Addressing the
competency crisis. Strategic Finance, 96(2), p.29.
Bromwich, M. and Scapens, R.W., 2016. Management accounting research: 25 years
on. Management Accounting Research, 31, pp.1-9.
Chenhall, R.H. and Moers, F., 2015. The role of innovation in the evolution of
management accounting and its integration into management control. Accounting,
organizations and society, 47, pp.1-13.
De Loo, I., Cooper, S. and Manochin, M., 2015. Enhancing the transparency of
accounting research: the case of narrative analysis. Qualitative Research in Accounting
& Management, 12(1), pp.34-54.
Fullerton, R.R., Kennedy, F.A. and Widener, S.K., 2014. Lean manufacturing and firm
performance: The incremental contribution of lean management accounting
practices. Journal of Operations Management, 32(7-8), pp.414-428.
Juras, A., 2014. Strategic Management Accounting-What Is the Current State of the
Concept?. Economy Transdisciplinarity Cognition, 17(2), p.76.
Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI
Learning.
Lavia López, O. and Hiebl, M.R., 2014. Management accounting in small and medium-
sized enterprises: current knowledge and avenues for further research. Journal of
Management Accounting Research, 27(1), pp.81-119.
Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability
assessment, management accounting, control, and reporting. Journal of Cleaner
Production, 136, pp.237-248.
Malmi, T., 2016. Managerialist studies in management accounting: 1990–
2014. Management Accounting Research, 31, pp.31-44.
Messner, M., 2016. Does industry matter? How industry context shapes management
accounting practice. Management Accounting Research, 31, pp.103-111.
Nielsen, L.B., Mitchell, F. and Nørreklit, H., 2015, March. Management accounting and
decision making: Two case studies of outsourcing. In Accounting Forum, 39(1), pp. 66-
82.
Nonaka, I. and Kenney. M., 1991. Towards a new theory of innovation management: A
case study comparing Canon, Inc. and Apple Computer, Inc. Journal of Engineering and
Technology Management, 8, p. 67-83.
Pavlatos, O., 2015. An empirical investigation of strategic management accounting in
hotels. International Journal of Contemporary Hospitality Management, 27(5), pp.756-
767.
Quattrone, P., 2016. Management accounting goes digital: Will the move make it
wiser?. Management Accounting Research, 31, pp.118-122.

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Tappura, S., Sievänen, M., Heikkilä, J., Jussila, A. and Nenonen, N., 2015. A
management accounting perspective on safety. Safety science, 71, pp.151-159.