Management Accounting

RUNNING HEAD: MANAGEMENT ACCOUNTING 1
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MANAGEMENT ACCOUNTING 2
EXECUTIVE SUMMARY.
The purpose of this report is to analyze different aspect of management accounting and various
elements that affect management decisions such as costs. various types of costs such as fixed,
variable, sunk and opportunity costs are discussed herein with various example. Detailed
calculation that are concerned with some investment decisions are worked out and analyzed to
show how such calculation assist managers to arrive at some key decisions that do not affect
their good results. A good example is a decision that involves advice to frank on whether to
relocate to a larger building in town or remain. Such decision is based on the calculation which
clearly indicated that there will be no cost benefit of relocating although there was no significant
different between relocating and remaining.
Innovation process is also examined which was evident in the case of cannon and apple
computers. Moral lesson learned from that case is also pointed out.

MANAGEMENT ACCOUNTING 3
Table of Contents
INTRODUCTION.......................................................................................................................................4
DIFFERENT TYPES OF COSTS AND EXAPMLES................................................................................4
INFORMATION RELEVANT OR IRRELEVANT TO THE PURCHASE OF APPLIANCE..................7
RELEVANCE OF COSTS......................................................................................................................7
IRRELEVANCE OF COSTS..................................................................................................................7
LAUNDERING COSTS..............................................................................................................................7
OPTION A: PURCHASE OF NEW APPLIANCE.................................................................................7
OPTION B: SELF SERVICE LAUNDRY..............................................................................................8
OPTION C: LAUNDRY SERVICE DELIVERY...................................................................................8
WHETHER AND ADDITIONAL EMPLOYEE SHOULD BE HIRED.....................................................9
LETTER TO FRANK ADVISING THEM ON THEIR SPACE OPTION.................................................9
COMPONENTS OF MANAGEMENT ACCOUNTING..........................................................................11
DECISION MAKING AND PERFORMANCE MEASUREMENT.....................................................11
INNOVATION PROCESS........................................................................................................................14
LESSONS LEARNED..............................................................................................................................14
CONCLUSION.........................................................................................................................................15
REFERENCES..........................................................................................................................................16

MANAGEMENT ACCOUNTING 4
INTRODUCTION
Fixed costs are costs that remain constant throughout the production process and do not change
with the level of output. They include license, insurance fee and installation costs. Variable costs
are those costs that change with the level of an activity such as mileage costs. Sunk costs refers
to the costs that are spent once and are not expected to be spend again such as renovation costs.
Opportunity costs is the costs of an alternative foregone in order to enjoy a service or a good.
DIFFERENT TYPES OF COSTS AND EXAPMLES.
COSTS EXAMPLE
FIXED COSTS  License fee of $ 225 annually is a
fixed cost since it does not change
based on the couple’s activities.
 Annual insurance fee of $ 3840.this is
fixed costs since it doesn’t change
with changes in the couple’s activities.
 Costs of utilities of $50 is fixed. This
case indicates that rise will happen
each month because of having the
daycare.it does not matter about the
number of children.it can also be
referred to as incremental because it
results from having the daycare.
 Grand total value of washer and dryer
of $ 420 and 380 respectively are
fixed costs. These costs will not vary
with the level of activity.
 Installation costs of $43.72 is a fixed
cost. This cost does not vary with the
level of activity.
 Delivery costs of the appliances of $
35 is fixed.it will remain constant
irrespective of the couple’s level of