Managerial Accounting Case Study Analysis and Journal Article Critique

This article provides a case study analysis and journal article critique on Managerial Accounting. The case study deals with a business unit developed by an old couple after working for 30 years in rail board company owner Douglas age 57 and Pamela age 52. The couple started a child care business named Nanna’s house in Oville, Taxes. The main theme of this case study is to find out the best option for the business to reduce the overall cost and help the business to develop more. The journal article critique discusses the different components of management accounting and how it helps in decision making and innovation.

Managerial Accounting
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Table of Contents
Introduction........................................................................................................................3
Part A: Case Study Analysis..............................................................................................4
1)....................................................................................................................................4
2)....................................................................................................................................5
3)....................................................................................................................................6
4)....................................................................................................................................8
5)....................................................................................................................................9
Part B: Journal Article Critique........................................................................................12
1...................................................................................................................................12
2...................................................................................................................................14
3...................................................................................................................................15
Conclusion.......................................................................................................................16
References.......................................................................................................................17
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Introduction
This case study deals with a business unit developed by an old couple after working for
30 years in rail board company owner Douglas age 57 and Pamela age 52. The couple
started a child care business named Nanna’s house in Oville, Taxes. In this case study
the knowledge regarding the use of different aspects of management accounting is
considered. The main theme of this case study is to find out the best option for the
business to reduce the overall cost and help the business to develop more. The case
study requires an expert advice regarding the different alternatives given which is more
suitable for the business.
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Part A: Case Study Analysis
1)
Cost
Expenses incurred by any business whether monetary or non-monetary in order to
produce or develop any product or providing any services is cost. Any conversion from
a basic raw material to sophisticated finished good requires certain amount of money
and that is to be considered as cost (Business dictionary, 2019).
Types of cost
 Variable cost
These are also called recurring cost. Variable costs are the day to day expenses borne
by the business to produce certain goods or providing a service. These costs changes
with change in the output as it increases directly with the increase in the output and vice
versa. In this case study the expenses over meal of children that is $3.20 per child per
day and laundry expenses are the perfect examples of variable cost.
 Fixed cost
Unlike variable cost fixed cost is non-recurring in nature. These costs do not vary with
change in output like variable cost. They remain constant even the production will
increase or decrease. In the given case the expenses on purchase and renovate the
house $79500 is a perfect example of fixed cost. Also the expenses on laundry machine
or dryer is fixed. These are uncontrollable in nature as any business cannot avoid these
expenses (Shaikh, S., 2019).
 Semi variable cost
Semi variable cost is the combination of both fixed and variable cost. Semi variable cost
remains fixed over a point of time or at a level of production and after that it will change
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to a higher or lower amount. In this particular case the insurance expanses by the
business that is $3480 is semi variable. As at $3480 insurance fees frank’s only
accommodate 9 children in their own house but as they move to the other house where
they accommodate 14 children the insurance expense is now increases to $5000
(Shaikh, S., 2019).
In every business different types of costs would incur. As in this particular case expense
of buying and renovating the house, laundry machine and dryer would consist of the
fixed cost. Also, the business has to incur some amount of periodic cost like licence fee
or insurance fee. And variable cost like meal expenses, laundry expenses which are
regular in nature.
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2)
Relevant information
In this case, the laundry machine and the dryer which are pretty old had stopped
working in the initial week of the business which creates a hardship to the owners as
laundry which was never a necessity for the couple now becomes a need to clean the
soiled clothes of children. The owners have to deal with the different alternatives given
in this case study. The first alternative is the nearby company which provides the
laundry and dry-cleaning services with pick-up and delivery service fir $52 per week.
The another alternative is to take the clothes to a laundromat which is just 3 miles away
once a week which charges only $8 per week excluding the detergent cost and the last
option with the owners is to buy a laundry machine and a dryer which costs $420 and
$380 respectively and having some additional cost for accessories and delivery. All this
information is relevant for the business in order to determine whether to buy the
machines or not.
Irrelevant information
In this case, there are many information which are totally irrelevant for decision making
that is whether to buy the machines or not. The cost of purchasing and renovating the
house in $79500 and its useful life of 25 years is totally irrelevant. Also, the business
has taken a licence and an insurance for $225 and $3840 respectively is totally
irrelevant. All these are sunk cost which do not play any role in future decision-making
process. These expenses are already incurred and no future decision would change
that. Also, the daily expenses incurred by the couples like meal to children and other
utilities are totally irrelevant. The area of the house, total population of the city all these
are irrelevant information as they do not play any role to choose the best alternatives.
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3)
In this case study two appliances that is laundry machine and the dryer had stopped
working in the initial week of business. These activities are much necessary for the
business to do. And for that purpose the business is evaluating the all given alternatives
is order to get the best result that is minimum cost for the month (Aver Kamp, 2019).
Option 1: launder from Red Oak laundry and dry cleaning
A nearby company Red Oak laundry and dry cleaning is ready to launder clothes for
franks at $52 per month including pickup and delivery charges, yearly calculations are
given as under: -
Particulars Working Amount per year
cost of dry cleaning including pickup
and delivery $52*12 $624
As per the option 1st, the total cost incurred by the business in laundry and dry cleaning
is $624 for the year.
Option 2: laundry from the laundromat
Another alternative with franks is to take the soiled clothes to laundromat and get the
laundry and dry cleaning of the clothes once in a week. The laundry service in this
alternative is self service and the expenses of detergents is to bear by the business
itself. Details of the expenses on yearly basis are given below: -
Particulars Working Amount per year
cost of laundry and dry cleaning 8*4.33*12 $415.68
cost of fuel note no.1 $174.58
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cost of detergent and laundry sheets 35*4 $140
total cost $730.26
(Note no 1: - cost of fuel is to be determined, total one-sided distance from house to
laundromat is 3 miles, so the total distance to be covered in a trip is 6 miles. Average
fuel charges is $0.56 per mile. Clothes have to be taken for cleaning once a week so
total fuel expenses for a week is 6*0.56 = $3.36 per week. Total cost for the year is
calculated as 3.36*4.33*12= $174.58 per year.)
As per the second option, Frank’s total cost for laundry and dry cleaning is $730.26 for a
year.
Option 3: Buy the laundry machine and the dry cleaner
The last alternative is to buy a washer and a dryer with a cost of $420 and $380
respectively. The life of the machines is considered to be 8 years and the business is
using straight line depreciation. Total cost of the machines including accessories and
delivery charges is given below
Particular Amount
Washer cost 420
Dryer cost 380
Installation cost 43.72
Delivery cost 35
Total cost $878.72
Yearly expenses for washing and dry cleaning the clothes under third alternative are
given below
Particulars Working
Amount per
year
cost of machines 878.72/8 109.84
energy used by washer - 120
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energy used by dryer - 145
total cost $374.84
From the given 3 alternatives option 3 buying new machine and dryer is most
economical. According to the calculations as per option 3 total yearly expenses in
laundry and dry cleaning the clothes is only $374.84. But as per alternative 1 and
alternative 2 the cost of cleaning the clothes are $624 and $ 730.24 respectively which
is twice as more as in option 1. So the cost of cleaning for the franks is $ 374.84 per
year.
4)
Franks can accept three more children with the help of an additional employee to whom
they have to pay $9 per hour for 40 hours in a week. Total profit from accepting these
three additional children is given below
Particulars Working
Amount per
year
Incremental revenue 800*3*12 28800
Less: cost of employee 9 *40 *4.33 *12 (18705.6)
Less: cost of meals and snacks Note no. 2 (2494.08)
Total additional profit $7600.32
Note no.2: - cost of meal and snack for one child per day is $3.20. As employee is to be
hire only for 40 hours a week and a full day is considered as of 8 hours each, we
calculated that a week is to be considered for 5 days. So, for three additional children
the additional cost of meals and snacks for the year is 3*3.20*5*4.33*12= $2494.08.
From the above calculations it is clear that the proposal is beneficial for the for the
business as they will generate a total of $ 7600.32 as additional profit for the year. So,
to employ an additional employee is beneficial for the business.
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5)
Cost per children
Particular Amount Year
Space cost 650 7800
Utility cost 125 1500
Insurance 416.6667 5000
Total 1191.667 14300
Per children 99.30 1191.6
Meals and snack 19.2 230.4
Total per children 118.50 1422.0
Employees needed
Particular Amount
Total children 14
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Handle children 3
Per working member 5
Frank Profit per children
Particular Amount
Charges from parents 800
Cost 118.5056
Profit 681.4944
Employee cost
Particular Amount
Per hour 9
per week cost 360
per month 1440
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Employee cost 4320
Profit
Particular children Amount
employee cost -4320
charges from parents 12 9600
cost of children 12 1422.067
Profit 6702.067
Per children 12 478.719
 As per the above calculations it will beneficial for the franks to move to the town and
take the house on rent as it provide them with much more profit than before. Also
they get to accept all 14 children.
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Part B: Journal Article Critique
1.
Every organisation whether large or small requires business analysis in its daily
working. Every organisation needs to forecast and make decisions on the basis on the
information available. Management accounting system provides the organisation with
the required amount of information and data necessary for them to make policies and
decisions over time. Management accounting system is a methodology implemented in
day to day working of the organisation from which manager or other decision makers
could get the required information in respect to finance, cost etc. also, the management
accounting help the organisation in developing innovation as discussed in the case
study of canon Inc. and apple computers. All such components which help these two
organisations in analysing and taking quick and effective decisions are described as
below (Fullerton, et. al., 2014).
 People: people are the main persons who uses the system of management
accounting to get the work done. In case of canon inc. and apple computers the
main users of the management accounting system are their leaders who played
the role of decision making and innovation.
 Input Devices: the components used in computer system to transfer data into the
system software are called input devices. These components take data from the
users and transfer it into the system software of the company for further
calculation. Examples of these devices are mouse, keyboards, bar code
scanners etc.
 Instructions and procedures: every company has its sets of basic instructions
and procedures which are developed to get the best possible results (Chenhall
and Moers, 2015). The companies use these procedures in its daily process and
all the members of the company supports these process and instruction to
collect, store and process of the data. As discussed in the article on canon and
apple these companies to avoid any miscommunication and delay in work follows
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the instructions and procedure which also help the companies to grow at a higher
rate than others.
 Data: Data is the key to form any opinion. Data is the raw information which
needs to process to get the desired information on which the decision making is
based on. Data is the most critical thing in management accounting. Processing
of data helps in forecasting results of the organisation.
 Software: now a days every business uses some specific software for its daily
operations. Even management accounting system operates with the help of
system software. These software helps in processing the data collected by the
organisation from various sources and provide fast and accurate results to the
company on which most of the company’s decisions are formed.
 Output devices: output devices are those devices which provided with the
processed results to the company on which the users form their opinion. The
output devices help to generate reports in acceptable form. Output devices
includes monitor, printer, and other output devices (Cokins, 2013).
 Information Storage Devices: process data and obtaining the results are
important for any organisation. But to store these results for future reference and
to use them again whenever needs is also equally important. Both of these
companies canon Inc. and apple computers uses quality devices to store and
process the data. Both these company uses quality checked devices with great
speed and which are memory expandable. These devices have to upgrade
regularly as now a day’s technology related to these products gets obsolete on
regular basis.
 Internal Control: internal control help the organisation to work in a effective
manner. Effective management needs good internal control. Both these
companies Apple and Canon operated under challenging environment and now a
days are one of the successful companies all over the world.
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2.
The discussion in the article regarding the innovation process in a form as ‘a process of
information creation’, and the way a firm needs to organize them as ‘to transmit the new
information’. These topics help the users to draw their attention towards the
understanding and use of innovation management and in the company with the help of
management accounting. The importance of management accounting system in the
innovation process is shown by Apple and Canon in their working system (Arjaliès and
Mundy, 2013).
Initially Canon started as a camera manufacture company and among few initial
companies who develops the concept of digital camera but it expands its business in
manufacturing zerox machines and calculators. Management accounting system helps
canon to expand its line from traditional PPCs to MC (Mini Copier) which produce clear
copies on compact and lightweight machine on cost effective basis by following ways:
 Product Innovation: management accounting helps the company to get the idea
of developing the light weighted and compact designed machine.
 Forecasting: with the help of management accounting techniques it was helpful
for canon to forecast the market and cashflow based on project reports and
previous trends.
In the case study of Apple computers, it is shown that how management accounting
system help the apple to develop a separate unit for mac computers to provide low cost
equipment to their customers. It can be understood in these ways:
 Financial Discipline: after the financial disturbance created by the innovation of
apple II which affected the decision making of the company the implementation
of management accounting system establishes the financial discipline in the
organization which induced better decision making in the organization.
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 Minimizing the cost of capital: management accounting helps the apple
computers to select from its various financial sources the best source which
helps the apple computers to minimise the cost and help to increase the profits.
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3.
Article written by Nonaka and Kenney in the year 1991 “Towards a new theory of
innovation management: A case study comparing Canon Inc and Apple Computers Inc.”
has been studied under this assignment (Christ and Burritt, 2013). This article shows
the different fields and areas of management accounting system used by the apple and
canon company. This article helps the management accountants of Australian country
to learn about the management analysis by studying this article. The significant
apprenticeships that could be beneficial for them are as follows:
 Management accounting system provides information to Innovation
Management: Innovation is the process of continuous development. Innovation
involves new ideas, new creations, new procedures etc. innovation is not a
onetime thing it is a concept of constant growth. As in the case of apple
computers after the success of apple II the company now wants to introduce to
the market an extremely low-cost computer with attractive features. In the initial
stage, the cost of the product was required to be carried out, and the market
price of the product was compared with the cost price to examine the success of
the product in the market (Arjaliès and Mundy, 2013). Here with the help of
management accounting system apple analysis the cost of the production and
the expected value of the product.
 Managing organizational operations: working capital is essential for any business
to rum smoothly and also not to lose any opportunity of growth and development
by employing excess funds. Apple used the funds it collected after the success of
Apple II product to an inexpensive new product Macintosh. So the accountants
needs to learn the utilization of excess cash flow in the innovation process.
 Study of Risk and Return factor: analysis of risk and return factor before investing
in any project leads to a great probability to success. Both the companies; Canon
Inc. and Apple Computers considered risk and return of the project before
investing in the plan of their companies. These companies only accept the
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project which are based on the feasibility study by using appropriate methods.
The project which forecasted cash flows for the company was accepted
(Eisenberg, 2017). Like in the article Apple rejected the proposal idea of
separating their manufacturing building of Mac Computers from Apple Computers
because it was not in favour of the company's cash flows.
 Long term wealth and value maximization: to stay in the market for a long period
of time it is very important to generate wealth by any business. Wealth helps the
business to be more prosperous and stable in the market. Also by the objective
to create wealth short term objectives like profit making are easily accomplished.
Canon Inc. after developing their series of new single flex cameras, company
expanded their business in the modern business lines of manufacturing business
by developing electronic calculators and copying machines for fulfilling their
wealth maximization objective.
Conclusion
The case that is captured requires to analyse the different alternatives which will provide
best results to the business by using the different concepts of management accounting.
This project also analyses the study of an article based on two leading companies in
their respective market canon Inc. and Apple computers. The article shows how the use
of correct management accounting principles leads to a success. The use of finances,
their investment procedures and how these things turn into the mile stone.
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References
Arjaliès, D.L. and Mundy, J., 2013. The use of management control systems to manage
CSR strategy: A levers of control perspective. Management Accounting
Research, 24(4), pp.284-300.
Averkamp, H., 2019. What is managerial accounting. Accounting coach. [Online]
Available at: [Accessed on: 13 May. 2019] Fullerton, R.R., Kennedy, F.A. and Widener,
S.K., 2014. Lean manufacturing and firm performance: The incremental contribution of
lean management accounting practices. Journal of Operations Management, 32(7-8),
pp.414-428.
Business dictionary. 2019. Cost. Business dictionary. [Online] Available at: [Accessed
on: 13 May. 2019]
Chenhall, R.H. and Moers, F., 2015. The role of innovation in the evolution of
management accounting and its integration into management control. Accounting,
organizations and society, 47, pp.1-13.
Christ, K.L. and Burritt, R.L., 2013. Environmental management accounting: the
significance of contingent variables for adoption. Journal of Cleaner Production, 41,
pp.163-173.
Cokins, G., 2013. Top 7 trends in management accounting. Strategic Finance, 95(6),
pp.21-30.
Eisenberg, M.A., 2017. Legal models of management structure in the modern
corporation: Officers, directors, and accountants. In Corporate Governance (pp. 103-
167). Gower.
Shaikh, S., 2019. 8 Main Types of Costs involved in Cost of Production and Revenue
(With Diagram). Economics discussion. [Online] Available at: [Accessed on: 13 May.
2019]
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