Management Accounting: Characteristics and Impacts on Decision Making

This report explores the characteristics and impacts of management accounting on decision making. It discusses different types of costs, such as fixed, sunk, opportunity, and variable costs. The report also provides advice on space options and highlights the role of management accounting in innovation. The subject is Management Accounting, and the document type is a report.

MANAGEMENT ACCOUNTING 1
UNIVERSITY NAME
STUDENT NAME
STUDENT ID
COURSE
DATE

MANAGEMENT ACCOUNTING 2
EXECUTIVE SUMMARY.
The main purpose of this report is to establish characteristics or features of management
accounting that have some impacts on the decision making of the management. This will include
items like costs such as Sunk, Fixed, Opportunity and Variable costs. Calculation that aid in
illustrating this costs have been carried out and analyzed in a way that will assists the
management in making decisions to ensure that their optimal performance is maintained. For
instance, the information used in advising frank on whether to relocate to a big building which is
in town or not to. This important decision is established through calculation of various costs and
it is finally established that moving to the new premise is not beneficial considering the costs
elements.
Table of Contents

MANAGEMENT ACCOUNTING 3
INTRODUCTION...........................................................................................................................................4
TYPES OF COSTS.....................................................................................................................................4
INFORMATION RELEVANT OR IRRELEVANT TO THE PURCHASE OF THE APPLIANCE..........5
RELEVANT COSTS...................................................................................................................................5
IRRELEVANT COSTS...............................................................................................................................6
LAUNDERING COSTS..............................................................................................................................6
OPTION A: ACQUIRING NEW APPLIANCE......................................................................................6
OPTION B: SELF SERVICE LAUNDRY..............................................................................................7
OPTION C: LAUNDRY SERVICE DELIVERY...................................................................................7
DECISION ON HIRING AN ADDITIONAL EMPLOYEE.......................................................................7
ADVICE LETTER TO FRANK ON THEIR SPACE OPTION..................................................................8
COMPONENTS OF MANAGEMENT ACCOUNTING..........................................................................11
MANAGEMENT ACCOUNTING ROLE IN INNOVATION...............................................................................13
LESSONS TO AUSTRALIAN COMPANIES.........................................................................................13
CONCLUSION.........................................................................................................................................14
REFERENCES..............................................................................................................................................15

MANAGEMENT ACCOUNTING 4
INTRODUCTION
Several cost have been seen in this case such as Variables Costs, Sunk Costs Opportunity Costs
and Fixed Costs. Sunk cost implies cost already incurred and are irrecoverable like the cost
renovation costs on the new building. Fixed cost is constant expense that is spend by the
company such as Cost of insurance, license fee and costs incurred from installations are
examples of fixed costs. Opportunity costs is the best forgone alternative for one to enjoy a given
good or service. Variable Costs are those costs related to the business activity and have impact
on increase or decrease in the general output.
TYPES OF COSTS
a) Fixed Costs - costs that do not change with changes in outputs (Davies &Kristjánsdóttir,
2010, pg. 48). They comprise;
a) Insurance Cost of $3840.this is an annual cost. The fee is constant because it
doesn’t vary with output levels.
b) License Fee of $225 is fixed since it does not change with level of business
activities.
c) Utility cost of $50. Cost because of having a day care.it is not affected with the
number of children.
d) Cost amounting to $35 for transporting the appliances. It is fixed cost since it
doesn’t change with activities of frank.
e) The value of Dryer and Washer of $ 380 and $ 420 respectively are fixed costs. It
is not affected with the level of business activities.
f) Installation fee amounting to $43.72 does not vary with business activities.
g) Extra cost of the washer of $ 120 yearly. This costs are fixed and they are as a
result of having the machine. This doesn’t change with the number of children.
h) rise in the utility cost of the dryer amounting to $ 145(Kropf &Sauré, 2014, pg.
183.).
b) Sunk Costs.
 Renovation cost of 79,500 is sunk cost.
 Cost of acquiring old machine amounting to $440 is sunk costs (McAfee, Mialon
& Mialon, 2010, pg. 330).
c) Variable costs.

MANAGEMENT ACCOUNTING 5
 The total cost of purchases on laundry will change in regard to changes in orders
placed is estimated to be $ 35 in every quarter of supplies made.
 The change of Costs incurred on clothes laundering as a result of changes in the
number of times its done weekly estimated at $ 8.
 Monthly Cost incurred on laundry amounting to $ 52 is a variable cost because it
changes with number of times the service is utilized annually.
 $ 0.56 incurred for every mile covered will vary.
 The expenditure on snacks at the rate of $ 3.20 for every child will tend to vary
according to levels and number of registered children.
 Collections of $ 800 for the care unit which will vary according to the enrollment
number.
 Cost of $ 15 for each child who stays past the normal time will change depending
on the number of the children who are picked late. (LaFrance &Pope, 2010, pg.
760).
d) Opportunity costs
 The time going to laundry has a forgone alternative.
 Opportunity cost as a resulting of space utilized at home for the machine
(Sipiläinen & Huhtala, 2012, pg. 444).
e) Convenience cost.
 The costs incurred for the delivery of the appliance or having the machine
operates at the current place. (McDermott & Stephens, 2010).
INFORMATION RELEVANT OR IRRELEVANT TO THE PURCHASE OF THE
APPLIANCE.
This is based on the relevance and irrelevance of options given concerning costs on whether
Frank should purchase a new appliance.
RELEVANT COSTS
The relevant costs on Frank’s decision to acquire the new appliance are as follows:
 The actual cost of the appliance
 Delivery cost incurred for the transportation of the appliance to the building.

MANAGEMENT ACCOUNTING 6
 The cost incurred for installing the appliance in the premise
 Extra cost of energy incurred as a result of the purchase of the appliance.
If at all Frank is going to consider this option to arrive at a decision of purchasing a new
machine, he will be supposed to take into account all the costs involved in this option. The cost
of cleaning and shifting of laundry service to different location is also important. (Sadeghinezhad
et al. 2014, pg. 39).
IRRELEVANT COSTS
These are costs which will not affect future decisions of the business. Such costs include sunk
costs. if Frank will acquire the new appliance, the value of the old machine will be irrelevant to
the future decision of the business (Wykowska &Schubö, 2011, pg. 650).
LAUNDERING COSTS
OPTION A: ACQUIRING NEW APPLIANCE
Annual cost of the appliance =$ 109.84
Increase in annual cost of energy = $ 265(120+145)
Detergent costs (annually) = $ 140
The Total Cost incurred after Acquiring the appliance therefore will be:
$ = (109.84 + 265 + 140)
= 514.4
W1
Washer =$ 420.
Dryer = $380.
Installation fee = $ 43.72.
Delivery fee = $ 35.
TOTAL COSTS = (420 + 380 + 43.72 + 35)

MANAGEMENT ACCOUNTING 7
$ = 878.72
The useful life of the appliance is 8 years.
OPTION B: SELF SERVICE LAUNDRY
Costs incurred on driving = $ 174.72
Cost of detergents = $ 140.
Laundering expense =$ 416.
TOTAL APPLIANCE COSTS annually will be
= (174.72 + 140 + 416)
= $ 730.72
W2.
= (6miles/week * $ 0.56/mile) =3.36/week *52 weeks= $ 174.72(driving costs)
= $ 35/quarter * 4 quarters) = $ 140.00(detergent costs)
= ($ 8.00/week * 52 weeks) = $ 416.00 (laundering costs)
OPTION C: LAUNDRY SERVICE DELIVERY
Cost incurred for pickup service =$ 52.00
Months of service = 12
TOTAL cost will be ($ 52.00 × 12 months)
= $ 624.00
DECISION ON HIRING AN ADDITIONAL EMPLOYEE
This decision will be arrived at by considering the change in costs from recruiting an extra
employee and extra cost incurred from feeding of additional children (Jain, Groenevelt & Rudi,
2010, pg. 121).

MANAGEMENT ACCOUNTING 8
Having additional children will lead to increase in revenue. the revenue collected from addition
of 3 more children will be ($ 800 × 3children) = $ 2400 every month.
The variance in cost due to additional employee is ($ 9/hour × 40 hours weekly × 4.33
weeks/month) = $ 207.8
The cost for additional food for the extra 3 children and additional employee = $ 1766.64.
Therefore, the total income collected from additional three children is more than the expenses
incurred from recruiting an extra employee and cost of feeding the additional children .it will be
cost beneficial for Frank to add one more employee because he would have already saved $
633.36 which is a good amount.
ADVICE LETTER TO FRANK ON THEIR SPACE OPTION
ABC COMPANY,
ADDRESS: +3906675
RE: ADVICE ON SPACE OPTION.
Dear Frank, my advice on the options you raised above on whether to accept the extra three
children, rent a new space in town and recruiting an additional employee will be based on my
analysis below (Larsen & Torm, 2011, pg. 545).
OPTION A: WHETHER TO REMAIN IN CURRENT PREMISE OR NOT.
INCOME:
(6 children)
Income to be collected from 6 children = $ 4800.00
Income to be collected from 9 children = $ 7200.00
EXPENSES:
(For 6 children)
Meals = 415.68

MANAGEMENT ACCOUNTING 9
Insurance fee=320.00
Deprecation fee = 265.00
License fee = 18.75
Laundry = 42.90
Utility = 50.00.
Total expenses= $ 1112.33
NET INCOME = (4800-1112.33)
$ = 3687.67
EXPENSES
(For 9 children)
Meals = 623.52
Insurance fee=320.00
Deprecation fee = 265.00
License fee = 18.75
Laundry = 42.90
Utility = 50.00.
Total expenses= $ 2878.97
NET INCOME = (7200-2878.97)
$= 4321.03
OPTION B: RELOCATING TO A NEW PREMISE
INCOME (for 6 children)
Income = $ 9600
MONTHLY EXPENSES (for 6 children)

MANAGEMENT ACCOUNTING 10
Insurance cost =416.67
Depreciation =0.00
Laundry = 42.90
Rent cost = 650.00
Employee 3117.60
Meals = 813.36
Utilities = 125.00
TOTAL = 5202.28
NET MONTHLY INCOME = $ 4397.72
INCOME (for 9 children)
Income = $ 11200.00
MONTHLY EXPENSES (for 9 children)
Insurance cost =416.67
Depreciation =0.00
Laundry = 42.90
Rent cost = 650.00
Employee = 4676.40
Meals = 969.92
Utilities = 125.00
TOTAL = 9899.64
NET MONTHLY INCOME = $ 4300.36
W3
Income= $800 /child monthly * 6 children *1 year (12 months)

MANAGEMENT ACCOUNTING 11
Meals= $ 3.20 /child daily * 6 children * 5 days every week *4.33 weeks’ monthly
License =$ 225 yearly ÷ 12 months= $ 18.75
Insurance=$ 5000 yearly ÷ 12 months = $ 416.67
Laundry= $ 514.84÷12= $ 42.90
Depreciation= {79500÷25} ÷12=$ 265.00
Rent=650.00
Utilities=125.00
Employee = $ 9 per hr. * 40 hours weekly * 4.33 weeks per month =$ 1558.80 every month for
an employee.
From the above computations, it’s clear that moving to a to another bigger premise in town will
instead result in decline in the monthly income. therefore, it’s my recommendation that
remaining in the current location will be cost beneficial.
Yours sincerely.
COMPONENTS OF MANAGEMENT ACCOUNTING.
planning
The management accounting aspect highlighted in the Canon Company is that of planning.
Canon plans to spread into new areas in order to maintain its expansions and this made the
company to spread into office machinery through the development of electronic calculators and
copying machines. The company originally experience adverse difficulties when the demand for
products declined making the company to shift from the low price market. After organization
restructuring, the company blossomed with an income of more than 20% in the past ten years of
operation. The combination and interaction of individuals with diversified technical abilities
grants an enabling environment that offered creative tension needed to pave way to synthesis and
new information making. The company had employed mid-career individuals to establish a
diversified group to expand the room for generating new information (Shaytura et al. 2016).
Cost control

MANAGEMENT ACCOUNTING 12
This has been featured and clearly highlighted in the Canon company strategies. These are
strategies that targets production taking place at economical cost to the manufacturing entity.
Canon which had an idea of developing a plain paper copier technology which though had been
resisted by many in the industry who hold that Canon should proceed with manufacturing
business of cameras as it has been doing before. The small copier required different features
from the initial Plain paper copier. The copier must produce clear copies, which was to be lime
weight and compact (Dale &Plunkett, 2017). The MC could have been used hardly the cost use
in servicing oftently could be exorbitantly high on a per copy criterion. As a result of this, the
copier required no maintenance or just a simple maintenance. The original cost price of
maintenance was not supposed to be more than 200,000 Japanese Yen. This is a limitation to the
design group. A feasibility team is then set up to examine an MC. The team faced a challenge
of harmonising the relationship that dominates between reliability and cost like when reliability
was advanced ,production cost increases,, and when costs were lowered ,services necessary
rises.Mitrai ,the Managing Director named the objective "Cost Reliability" improvement which
tried at resolving the difficulty by developing a new concept of how the copier could be
used .The new concept developed to cut on cost was that the whole drum was to be a module
that could produce several number of copies. This has made it possible for the company to
develop a discarded photo receptor, disposable development equipment and an instant toner-
fuser within the budgeted cost. The relationship between the drum and the beer granted the
taskforce group several into the methods of producing the drum at a reduced cost.
Decision making
This is an important element of the management accounting which has been clearly outlined in
this two companies studied (Marques, Gourc & Lauras, 2011, pg. 1060). In the Canon Company,
when the team saw it was hard to launch the drum idea, The Managing Director, Mitarai came up
with the idea of relating it with beer can disposable cans and this spark an intensified argument
discussion and this made them to adopt the decision of making disposable photo receptor,
discarded development equipment and an instant toner-fuser. In the Apple company the concept
of decision making has been outlined, the interaction between the members of the Mac lead to
the development of new features and ideas. The group opted to informal designed meetings to
agree on this development hence an informed decision is reached (Gupta, Pevzner &
Seethamraju., 2010, pg. 890).

MANAGEMENT ACCOUNTING 13
MANAGEMENT ACCOUNTING ROLE IN INNOVATION
The administration provides a measure within which the making is carried out. The widely
interactive commodity development teams consist of individuals from different backgrounds and
worked in surrounding of extreme consultation (Zona, Zattoni & Minichilli, 2013, pg. 299). The
actual products to be produced were totally different from the two highlighted particulars. Canon
undertook and established commodity and later relaunch it for the large market. Mac made a
critical step forward in individual computing. The linking of the commodity development group
the host varied widely in Canon; the top executive worked as one in order for the innovation
process to perform. The administration in the Apple did not function in unity when related to the
Mac project, it was only after when the administration in favour in favour of the innovation
process that the process proceeds. The administration were in favour of the homogeneous
structure with clear responsibilities and more synchronized distinct branches of the company
(Suharno & Ratule, 2012). Similarly, the objectives were considered and the taskforce was given
the capability to facilitate the whole entity. The responsibility of Steve Jobs who was installed as
the "product champion" was to authorised the resources to be used in the Mac product. His vital
role, was to establish the vision of the company and finally offer a ground to the company to
translate visions into a reality through commodity making. It was during this period when the
incredible goals of the commodity were established and it increased the input from the group. In
this widely changing economy. The firms ought to establish an environment enabling new
concepts and important information to be distributed within the entire firm. The Mac project
reflect this by its induction into Canons Research and Development wing. It needs a much paid
attention, careful and performing executive. The administration duty in the entity trying to scoop
information creation should not be that of coercing those implementing just like a military
training but rather arguing and involving the juniors and the performing individuals in the
process of decision making. The leader should involve them and help them wipe their problems
which will facilitate them in accomplishing their set objectives (Brennan & Merkl, 2013, pg.
140).
LESSONS TO AUSTRALIAN COMPANIES
The most lesson that is learned by the Australian companies is that of decision making in
organization which should be involving all the stakeholders in the entity. Decisions in vast
companies should involving all the stakeholder in the entity mainly those implementing the

MANAGEMENT ACCOUNTING 14
proposals (Fernandez, 2016, pg. 5). Decisions should not be one man's say as this may lead to the
decision maker ignoring the most important aspects that could be included in the policies to be
dropped and instead the least important ones be incorporated. Even if the decision making
should be by a single person he /she should carry out wide consultations before setting on a
decision (Robert, Shepherd& Sharfman, 2011, pg. 685). In organisations where decision making
is bureaucratic the duty of each administration unit should be well outline to avert disagreements
on the decision making powers of each unit. The companies should define their leadership style
to adopt whether democratic or dictatorial though democratic is widely accepted in several
institutions. Basing on the situation dictatorial leadership can be applied through implicit and
explicit coercion. Lastly the companies should learn that for the innovation process to function
team work is necessary. This is so because for innovation to take place different individuals
performs different roles thus failure of the coordination between them fails the process (Drucker,
2014).
CONCLUSION.
Management accounting is a necessary tool in managing the resources of the company in an
efficient and effective manner. Determination of several costs is vital so that the management
can know where they can cut on the expenditure. Understanding the expenses relating to specific
course of action can make the management to undertake the required decision concerning certain
issues.
Innovativeness and creativity is also an essential element for the success of any business.

MANAGEMENT ACCOUNTING 15
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MANAGEMENT ACCOUNTING 16
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