Management Accounting Case Studies

Running head: MANAGEMENT ACCOUNTING CASE STUDIES
Management Accounting Case Studies
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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: