Managerial Accounting, Case Studies

Managerial Accounting, Case Studies
MANAGERIAL ACCOUNTING, CASE STUDIES
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MANAGERIAL ACCOUNTING, CASE STUDIES 2
Question 1
List three different types of costs with one specific example of each cost.
Cost specific example
1. Fixed cost the license fee of $225 annually. The license fee will remain
constant no matter the number of activities taking place in
the childcare changes. It’s not affected by changes in
childcare. For example, an increase or decrease of children
enrolled will not affect the amount payable for the license
fee.
2. Sunk cost home renovation cost of $79500.this cost has been incurred
and cannot be recovered. This cost cannot be included in
future decisions because it’s impossible to recover it.
(Ferreira, Moulang, & Hendro, 2010 pp342-351).
3. Variable cost the total cost of the amount spent on food and snacks at the
rate of $ 3.20 per child will change with the change in the
number of children enrolled. When the number of children
enrolled increases, so does the cost of meals and snacks
and vice verse.
Question 2
Relevant and irrelevant information to the decision to purchase the appliances
with reasons
Relevant information
In case the franks make a decision to buy the appliance the following costs will be
relevant to consider for comparing the cost difference among the three options they
have.
 The cost of the appliances
 The additional cost of utilities
 The cost of installation of the new appliances
 Cost of delivery of the new appliances

MANAGERIAL ACCOUNTING, CASE STUDIES 3
The above costs will help the franks determine the total cost required for purchasing a
new appliance which will help to compare with the cost of the other two options. The
following costs are also relevant in a case where the franks need to compare the
options.
 Self-service laundry total cost which will include the cost of detergent.
 Delivery and pick-up cost if they decide to choose laundry service.
Irrelevant information
 The cost of the old appliance
The cost of the old appliance is a sunk cost and it’s irrelevant in this case because it has
already been incurred and cannot be used to make future decisions which are
purchasing a new appliance in this case, thus it’s irrelevant. ( Ferreira, Moulang,&
Hendro, 2010 pp342-351).
Question 3
The cost incurred by the couple to launder clothes with detailed calculations for each
option.
 Self-service laundry
Self-service laundry total cost will be equals to the summation of the following cost;
Cost of laundering clothes 416.00
Cost of driving 174.72
Cost of detergent 140.00
Total cost $730.72
Working notes
Cost of laundering clothes = $8.00 per week* 52 weeks = $416.00
Cost of driving to laundry and back = 6 miles per week * $0.56 per mile = $3.36 per
week * 52 weeks=$174.72.
3 miles is one way so we multiply by 2 to get 6 miles.
Cost of detergent = $35 per quarter * 4 quarters = $140.00
 Delivery laundry service
Monthly cost of delivery service $52.00 * 12 months = $624.00

MANAGERIAL ACCOUNTING, CASE STUDIES 4
 Purchase new appliances
The annual cost of appliances $109.84
Increase in an annual cost of energy (145 + 120) 265.00
The annual cost of detergent 140.00
Total cost annually $514.84
Working notes
Dryer 380.00 + washer 420.00 + delivery 35.00 + installation 43.72 = $ 878.72 total cost
$878.72 is the total cost of the appliance for 8 years; therefore we divide the total
amount by 8 to get the annual cost of the appliance.
878.72/8 =109.84 (the cost for one year since the appliance has 8 years existence)
Question 4
The Franks have a waiting list for their daycare. They can hire an employee for $9
per hour for 40 hours each week. With the additional employee, the Franks can
accept three additional children. Should the Franks hire the additional employee?
Show your detailed calculations.
 Additional cost
Additional employees cost = $9 per hour * 40 hours per week * 4.33 weeks = $1558.80
in a month
Additional cost of food and snacks = $3.20 per child per day * 3 children * 5 days per
week * 4.33 weeks per month = $207.84
Total = $1766.64
 Additional revenue
3 children * $800 per month = $2400.00 in a month
Therefore;
Revenue minus cost = profit / loss
2400.00 – 1760.64 = $633.36