Management Accounting: Analysis of Costs and Decision Making

MANAGEMENT ACCOUNTING
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UNIVERSITY NAME
STUDENT NAME
STUDENT ID
COURSE
DATE

MANAGEMENT ACCOUNTING
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EXECUTIVE SUMMARY.
The objective of preparing this report is to analyze various features of management accounting
and a range of fundamentals that have impact on decisions concerning management. such
elements are different costs which include Sunk, Fixed, Opportunity and Variable costs. detailed
workings and illustrations concerning investment decisions have been calculated and analyzed in
a way that will be helpful to managers on how to make decisions which will not affect their good
performance. An example of decision used here is an advice given to frank on whether to move
to a bigger building which is in town or not. The decision is arrived at by calculating all the costs
and it emerged out that relocating to the new building is not beneficial in terms of cost.
A case study on the innovation process of Canon and Apple devices has also been outlined and
lessons learnt are also pointed out.
Table of Contents

MANAGEMENT ACCOUNTING
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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.......................................................................14
CONCLUSION............................................................................................................. 14
REFERENCES............................................................................................................ 15

MANAGEMENT ACCOUNTING
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INTRODUCTION
The various costs evident in this case are Variables Costs, Sunk Costs Opportunity Costs and
Fixed Costs. Sunk cost is the cost that has been incurred and which cannot be recovered like the
cost incurred on renovating the new building. Fixed cost is a constant expense incurred by the
company and which is not related to any business activities. 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 affect increase or decrease of the general output of the
business (Davies &Kristjánsdóttir, 2010, pg. 48). They include
 Insurance Cost of $3840 paid annually. The fee is constant in that it does not
change with any changes in the general output.
 License Fee. The annual cost incurred on license amounted to $225.this fee does
not change with any changes in the activities of the business.
 Utility cost amounting to $50. this is the cost incurred for having a day care. It
does not change with increase or decrease in the number of children.
 Delivery cost amounting to $35 for the transportation of the appliances. It is
constant because it does not change with change in Frank’s activities.
 The value of Dryer and Washer of $ 380 and $ 420 respectively are fixed costs.
The level of activities in Frank’s business will not affect their value.
 Installation fee of $43.72 which does not change with changes in the level of
business activities.
 Extra cost incurred on the washer totaling to $ 120 yearly. The costs are as a
result of having the machine and there it is fixed because it does not change
irrespective of a change in the number of children in the day care.
 Increase in the dryer’s utility cost amounting to $ 145(Kropf &Sauré, 2014, pg.
183.).
b) Sunk Costs.