Management Accounting: Types of Costs, Decision Making, and Components of Management Accounting

MANAGEMENT ACCOUNTING 1
UNIVERSITY NAME
STUDENT NAME
STUDENT ID
COURSE
DATE

MANAGEMENT ACCOUNTING 2
EXECUTIVE SUMMARY.
The purpose preparing this report is to determine various facets of management accounting and
different factors may influence decisions of managers like different types of costs. Different
types of costs like fixed, variable, sunk and opportunity costs are analyses in this report including
their examples from the case. Calculations to determine various costs that will assists managers
make critical decisions are solved to see their behaviors given some conditions like relocating to
new areas. example is a decision which entails advising frank on whether to move to town or
remain in the current place. Such a decision majorly made after considering the costs element if
there is benefit of relocation or non. Components of management accounting is also discussed
herein. Innovation process is also discussed as seen from the case of cannon and apple
computers. Moral lesson learned from that case is also pointed out.
Table of Contents

MANAGEMENT ACCOUNTING 3
INTRODUCTION.......................................................................................................................................4
DIFFERENT TYPES OF COSTS AND EXAPMLES................................................................................4
INFORMATION RELEVANT OR IRRELEVANT TO THE PURCHASE OF APPLIANCE..................6
RELEVANCE OF COSTS......................................................................................................................6
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 AN ADDITIONAL EMPLOYEE SHOULD BE HIRED.......................................................8
LETTER TO FRANK ADVISING THEM ON THEIR SPACE OPTION.................................................9
OPTION A: REMAINING IN THE CURRENT LOCATION..................................................................10
OPTION B: MOVING TO THE LARGER FACILITY............................................................................10
COMPONENTS OF MANAGEMENT ACCOUNTING..........................................................................11
PLANNING/BUDGETING......................................................................................................................11
COST CONTROL.....................................................................................................................................12
DECISION MAKING /PERFORMANCE MANAGEMENT...................................................................13
ROLE OF MANAGEMENT IN THE INNOVATION PROCESS...........................................................13
LESSONS LEARNED BY THE AUSTRALIAN COMPANIES.............................................................14
CONCLUSION.........................................................................................................................................15
REFERENCES..............................................................................................................................................16

MANAGEMENT ACCOUNTING 4
INTRODUCTION
Fixed costs refers to costs that do not change with the change in the costs drivers or level of
business activity for instance license, insurance and installation costs. Variable costs on the other
hand vary with change in the level of activity like mileage costs, sunk costs are costs that are
incurred only once for example renovation costs. Opportunity costs refers to costs of an
alternative that is forgone.
DIFFERENT TYPES OF COSTS AND EXAPMLES.
COSTS EXAMPLE
FIXED COSTS  License fee of $ 225 annually is
considered as fixed cost since it does
not change based on the level of
business activities.
 Annual insurance costs of $ 3840 is
fixed costs because it doesn’t change.
 Utility costs of $50 is fixed. This case
points out that rise will happen each
month because of having the daycare.
 Grand total value of washer & dryer of
$ 420 and 380 respectively are
considered fixed costs because they
will not change with changes in the
activity level.
 Costs of Installation of $43.72 is
another fixed cost doesn’t vary after
installation.
 Costs of delivering the appliance
machine of $ 35 is fixed.it will not
change
 increase in cost of energy due to use
of washer machine of $ 120 is an