Management Accounting: Characteristics and Impacts on Decision Making

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.