Managerial Accounting: Cost, Decision Making, and Income Calculation

MANAGERIAL ACCOUNTING

Table of Contents
Part A.........................................................................................................................................3
Answer1.................................................................................................................................3
Answer2.................................................................................................................................3
Answer3.................................................................................................................................4
Answer4.................................................................................................................................6
Answer5.................................................................................................................................7
Part B........................................................................................................................................11
Identification of the components of the management accounting system...........................11
Description of the innovation process in a firm as ‘a process of information creation’, and a
firm needs to organize them ‘to transmit the new information.’..........................................12
Learning from the article’s research finding useful for management accountants in
Australian companies...........................................................................................................13
References................................................................................................................................15

Part A
Answer1
A cost does have relationship with output produced by an organization. The manner of
categorization of cost is dependent on the relationship with output as well as the context in
which same is used by the organization (Johnson and Folkes, 2015). Every factor of
production of goods and services is associated with cost. Thus it is necessary to make these
expenditures in order to run business in appropriate manner. Fixed and variable cost is basic
cost which is incurred by any organization. Another cost which is applied in budgets is
controllable and uncontrollable cost for drafting of budgets (Piao and Kleiner, 2015). Further,
sunk cost is the cost which has been incurred and does not have any impact on the decision of
the manager. Explanation relating to three cost have been provided below in detail manner
with examples.
Fixed Cost: It is a cost which does not change or fluctuate with the change in volume of
output (O’Keeffe, Ozuem, and Lancaster, 2016). Further, they are incurred on a regular basis
and they tend to represent little fluctuation from period to period. It is incurred by the
management regardless of the level of production. For example payment relating to rent,
rates, taxes etc (Więcek-Janka., etal. 2017). In present case of Nanna’s House payment made
as license fees i.e. annual fees of $225 is fixed cost.
Variable Cost: The specified cost changes or fluctuates in direct proportion with change in
output (Otley, 2016). In other words it can be stated that variable cost depends on the output
generated by the organization (Bhattacharya, 2016). Thus, increase in output leads to increase
in cost and on the other hand decrease in output leads to decrease in variable cost ( Day,
2015). In present cost of meal and snack are variable expenses.
Operating cost: These costs are relating to day to day operations of the business. It could be
fixed as well as variable (Lees, 2017). Thus, operating cot is not relating to production of a
product but are relating to selling, administration and overhead expenses (Chenhall and
Moers, 2015). For example: rent, marketing expenses etc. In present case laundry and washer
expenses can be stated as operating cost.

Answer2
Relevant and Irrelevant cost plays significant role is decision making of managers (Seuring,
and Goldbach, 2013). Relevant cost can be referred as cost which is not same under different
alternatives (Messner, 2016). The cost which affects the decision of manager is referred as
relevant cost and cost which does not affect are irrelevant cost. Irrelevant cost are
independent of various decisions and are not considered while decision making (Maas,
Schaltegger and Crutzen, 2016). Cost which are same for various alternatives are not
considered and treated as irrelevant cost. The difference between irrelevant and relevant cost
can be understood with an example that in case an individual has two choices and he makes
choice for option A instead of option B than it means than the expenses which will affect the
decision will be considered as relevant cost and expenses which make no difference to the
decision will be considered as irrelevant cost (Noreen, Brewer and Garrison, 2014). Further,
additional cost paid is compare with additional income in order to ascertain revenue from
utilizing additional capacity.
Fixed cost can also be part of relevant cost in case they change due to decision ( Weygand
Kimmel and Kieso, 2015 ). Sunk cost, overhead cost and historical cost are examples of
irrelevant cost (Plank, 2018). In present case of Nanna’s House, the expenditure which has
been already incurred on old appliances which cost $440 is irrelevant cost. The reason behind
same is that specified expenditure is having characteristic of sunk cost; the cost already spend
by the management and can’t be reversed whether they move ahead or close their operations.
The cost relating to new appliance i.e. $420 and dryer $380 is required to consider before
taking decision relating to purchasing of appliance. Further, additional energy cost is also
relevant cost and to be considered while taking decision relating to choosing option regarding
laundry activity. The expense made under each option relating to pick- up delivery as well as
any other payments made to laundry and wash are relevant cost. The cost to be paid to other
alternatives i.e. to Red Oak Laundry as well as to Laundromat will also be considered while
taking decision relating to purchase of machine. As in case the cost of providing clothes to
both of these alternatives is lower in comparison to cost spend for purchase of machine than
other alternative will be considered.