Managerial Accounting

This document provides an analysis of a case study in managerial accounting, including examples of fixed costs, variable costs, incremental costs, and sunk costs. It also discusses the differentiation between relevant and irrelevant costs in decision making. Additionally, it includes a journal article critique on management accounting concepts and their application in real-world scenarios.

Running head: MANAGERIAL ACCOUNTING
Managerial Accounting
Name of the Student:
Name of the University:
Author’s Note

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MANAGERIAL ACCOUNTING
Table of Contents
Part A: Analysis of Case Study..........................................................................................2
Requirement 1................................................................................................................2
Requirement 2................................................................................................................3
Requirement 3................................................................................................................3
Requirement 4................................................................................................................4
Requirement 5................................................................................................................5
Part B: Journal Article Critique..........................................................................................6
Requirement 1................................................................................................................6
Requirement 2................................................................................................................7
Requirement 3................................................................................................................8
Reference..........................................................................................................................9

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Part A: Analysis of Case Study
Requirement 1
The case which is shown in the assessment requires specific examples which is
required to be provided on fixed costs, variable costs, incremental costs and sunk costs
which are associated with a business. The costs are considered as the same are
important for the purpose of taking major decisions relating to the business. In such a
case, the sunk cost of a business is not considered as they are insignificant to decision
making process of the business. The fixed costs of the business do not change with the
change in the production volume for the product and therefore remain constant and
therefore the same are considered for analysis (Fullerton, Kennedy and Widener 2014).
In case of variable costs, the amount which is spent in such a cost varies on the basis of
the production volume which is applied by the business. Incremental costs are costs,
which are used in business planning analysis for obtaining an overview of additional
cost to the organisation. These types of costs are incremental in nature and therefore
must be considered by the management of the company in decision making process of
a business. The examples which can be provided for the three types of costs which
helps in decision making process are shown in the tabular format given below:
Cost Specific Example
Fixed Annual license fee amounting to $225 would be considered to be a
fixed cost of the business as the same is one-time payment for a
year and is constant.
Variable The total amount gathered for child care at a rate of $800 per child
would be covered under variable costs as the same would change
if the number of students who are enrolled changes.
Incremental The increased cost of utilities, which is $50, is fixed. According to
the case information, there would be increase in each month owing
to the day care and thus, the number of children is not a factor.
These costs would be considered as an incremental cost of the
business due to the nature of the expenses which is incurred by
the business.
Requirement 2
The differentiation between costs which are relevant and irrelevant to the cause
of the business is important in the decision which is taken for appliance purchase. The
issues which can be recognized from this situation is that whether the costs are incurred
for the decisions which is to be taken in future and whether it is possible to differentiate
the costs between the alternatives (Fullerton, Kennedy and Widener 2013). These costs
are deemed to be relevant if the same are fulfilling certain criteria which are established
for identification of such costs. Considering the case, if Frank decides to purchase the
appliances than the relevant costs which can be identified are listed below:
 New appliance cost
 Delivery cost related to new appliances
 Installation cost related to new appliances
 Additional utility cost

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On the basis of the above costs, Frank would be required to take an appropriate
decision regarding the choice which he would be taking. Any alternative options which is
available to Frank would be considered along with the costs which are associated with
the alternative course of action. Therefore, in the case of alternative product, the
following relevant costs would be identified:
 Delivery cost and pick-up of laundry service
 Self-service laundry expenses like laundering, detergent and mileage
In addition to this, it would also be necessary for Frank to consider the costs which
are not related to the alternatives and which are not in any way associated with future
decisions for Frank. The irrelevant costs which can be identified for the purchase of
taking important decision of purchasing the appliance are listed below:
 Old appliance cost
 Detergent cost would not be relevant, only if the available options do not take into
account delivery and pick-up services
Requirement 3
The cost for laundering the clothes for the couple can be determined on the basis
of the relevant costs which were previously recognized by the couple. The three
alternatives which are available to the couple needs to be properly identified and
analyzed. The fits option which is available to the couple is by taking laundering
services from an outside store named Red Oak Laundry and Dry Cleaning. The second
option which is available to the couple is Laundromat Service while the third option
which is available to the couple is related to purchase of a new dryer and washer. The
first and second option are basically outsourcing the laundering services and therefore
the same would not be requiring any initial investment (Jamil et al. 2015). The third
option is a different case scenario as the couple would be requiring initial investment
and would be incurring on installation, purchase and delivery of the product. In order to
estimate which option is best for the couple, a computation is shown below which also
makes it possible to make comparison among the three options:
Particulars Option 1 Option 2 Option 3
Initial Cost:
Cost of Washer 420
Cost of Dryer 380
Installation Cost 43.72
Delivery Charges of Appliances 35
Total Initial Investment 878.72
Operating Expenses:
Monthly Laundering Cost of Agency 52
Monthly Travelling Charges to Laundromat 14.5488
Monthly Laudering Charges in Laundromat 34.64
Monthly Laundry Supplies for Landromat
11.66666
7
11.6666666
7
Monthly Depreciation of Appliances
9.15333333
3

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Additional Enegry cost of Washer 10
Additional Enegry cost of Dryer
12.0833333
3
Total Monthly Operating Expenses 52
60.85546
7
42.9033333
3
Annual Expenses 624 730.2656 514.84
Total Cash Out Flow 624 730.2656 1393.56
The table appropriately presents the operating expenses of the business and
also shows the monthly expenses which the couple would be incurring on the respective
options which is shown above. The overall expenses of the third option are shown to be
lower in comparison to other options which is available to the couple. The initial cash
outflow would be much higher in case of the third option which is to purchase the
appliance but it is to be considered that the most cost-effective option as the table
above shows is the option to purchase the equipment.
Requirement 4
To,
Franks,
Date: 29th May 2019
Subject: Letter of recommendation
The situation which is which is present in the case can be effectively measured
with the help of incremental analysis. The couple needs to evaluate the incremental
costs which is associated with the case. The changes in the costs needs to be
considered for the additional employees along with the provisions of feeding additional
children. It is also to be noted that the additional children would result in more revenue
which also needs to be considered by Frank. The incremental charges are represented
in the table which is shown below:
Particulars Amount
Additional Number of Children 3
Revenue per Child 800
Incremental Revenue per Month 2400
Number of employees 1
Labour Hour per week 40
Labour Charges per hour 9
Incremental Labour Charges per month 1558.8
Food cost per day for each child 3.2
Number of days per week 5
Incremental food cost per month 207.84
Total Incremental cost 1766.64
Incremental Profit per month 633.36

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The incremental revenue which is obtained by taking in additional three children are
shown in the table above and the same also exceeds the incremental costs of staffs and
food which needs to be incurred (Pavlatos and Kostakis 2015). Therefore, Franks would
have net benefit of $633, if he decides to exercise the option.
Requirement 5
The strategic goals of the organization would be formulated on the basis of
insights which is obtained from the location of facility and enrollment decisions which is
required to be taken by the management (Cazier et al. 2015). The analysis would
enable a better understanding of the enrollment decisions on the staff members and the
food costs which needs to be incur. The computation of monthly income statement is
shown below and the calculations would be demonstrating service for nine children
would need one additional staff; service for 12 children would need two additional staffs
and service for 14 children would need three additional staffs.
Remain in Current Location:-
Particulars 6 children 9 children
Revenue 4800 7200
Expenses:
Meals 415.68 623.52
License 18.75 18.75
Insurance 320 320
Laundry 42.90333333 42.90333333
Depreciation 265 265
Rent 0 0
Utilities 50 50
Employee 0 1558.8
Monthly net income 3687.666667 4321.026667
Move to Larger Facility:-
Particulars 12 children 14 children
Revenue 9600 11200
Expenses:
Meals 831.36 969.92
License 18.75 18.75
Insurance 416.6666667 416.6666667
Laundry 42.90333333 42.90333333
Depreciation 0 0
Rent 650 650
Utilities 125 125
Employee 3117.6 4676.4
Monthly net income 4397.72 4300.36

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The above computation shows the feasible course of action which can be
selected effectively (Quattrone 2016). The above table shows that the most appropriate
income is generated by the business in terms of monthly income when the number of
children is shown to be 6 children. The income difference among 9, 12 and 14 children
is not considerable with only a diminishing return point. If in the situation, Frank decides
to expand the facility and move to a bigger location for accommodating 12 children
would result in higher income considering the options of alternatives which is available
to Frank. Therefore, it can be said that the alternative option should be selected by
Frank.
Part B: Journal Article Critique
Requirement 1
The concepts which are associated with management accounting is related to
three main areas of a business which are planning, controlling and decision-making.
The activity of controlling allows the management to effectively supervise the operations
of a business or a project which is undertaken by the business with the intention of
generating revenue in the business. The outcome and processes which is followed by
the business needs to be assessed properly by the management while performing the
controlling activity of the business (Bromwich and Scapens 2016). The second function
is planning which is by far the most important function which is undertaken by the
management of the company as the same relates to forecasting and look ahead for
opportunities which will be present in the future. Planning activities helps the
management to keep its sights on long term goals of the business which may be profit
maximization or wealth maximization (Schaltegger and Burritt 2017). The next function
is the decision-making criteria and formulation of appropriate strategies. This is
considered to be an important area for the business as decisions are taken based on
the strategies which are followed and the same are also formulated considering the
goals and objectives of the business. It is to be noted that the formulation of strategies
is an area which connects the process of planning and the business activities which are
undertaken by the management of the company during the period.
Canon Inc which is considered has made significant development of Mini Copier
through re-conceptualisation of the overall plain paper copier market and due to this
factor, the introduction of Mini Copier would lower the maintenance costs of the
business or there would be a situation of no cost at all. Therefore, the actualisation of
Mini Copier was needed for managing the inverse association between reliability and
cost. The costs of the business increased due to the increase in the reliability and due
to more requirement of services (Netland, Schloetzer and Ferdows 2015). Therefore,
the problem which has been identified with relation to mini copier is the durability of
drums and cleaners which needs improvements. The new method would require the
drum to be treated in the form of a module, which has been discarded after making
different numbers of copies and the outcome would be the copier development, which
would be devoid of maintenance (Juras 2014). The product development has been
revolutionised owing to the addition of capacity of Canon Inc.

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The case of Apple company can be cited as the business at one point of time
shifted its focus on innovation and proper management accounting concepts for re-
modelling the business altogether. The aim of the business was to revolutionise the
computed system by introducing the Mac computers. The management of Mac team
made significant changes in the business structure so that the business can create a
buzz in the market for enhancing the demand for the product in the market.
The controlling factor that Apple has used for producing the Mac resulted in
development of new and innovative approach and also led to enhancement of sales of
the business. In the business of Apple, the CEO of the company played a vital role in
managing the operations of the business and lead the business through the new
development. In an over estimation, it can be said that the innovation policies and
structure of the business led to the enhancement of the business and complete
reorganization of the business (Alsharari, Dixon and Youssef 2015). The role of
innovation had a positive impact on the operational process of the business and thereby
allowed the company to earn proper revenue in the long run.
Requirement 2
Management accounting is a group procedure which is used by the management
of the company for taking important and vital decisions for the business and also for
providing valuable insights in the process of planning, monitoring and decision-making
activities of the business (Nimtrakoon and Tayles 2015). The case of Canon shows that
the management of the company achieved development by the recapitalisation of the
overall plain paper copier, which has been developed on human activity (Nonaka and
Kenney 1991). The decision to contradict the copier was a well though out process and
involved heavy brain storming. In addition to this, the innovative model which is used by
the business evolved the use of drum development in the form of module which after
learning different copies, need to be discarded and this would make the copier free of
maintenance.
In the case of Apple, the new innovative idea which was developed by the
business was related to evolution of computers from Macintosh Computers and the
same was made possible by the Mac team which operated under the authority of the
CEO of the business. The team of Mac followed a problem-solving approach which
incorporated identification of a problem which is related to the computer and then
effective consideration was given to solve the problem so that a perfect product can be
developed (Figge and Hahn 2013). This is the reason that Mac a differentiated deign
and also a compact look. The resources have been funnelled into the Mac project
appropriately and later on the company has further incorporated. This also led to
development of a better product which was offered by the company.
Requirement 3
The analysis of the business of Canon and Apple shows that the overall business
processes and management accounting system which is applied by both the
businesses are different. In addition to this, difference can also be observed in the
innovation criteria which was followed by the management of the respective companies
(Sadikoglu and Olcay 2014). The business of Apple has experienced significant growth
over the years which is mainly due to presence of appropriate capital to the business in

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the form of venture capital. On the other hand, the growth of Canon has been hampered
due to the intense competition which the business faces in the Japanese market. These
are the features which has led to a low growth rate of Canon in the market. The
innovative approach which is followed in the business of Canon is not in league with the
innovative framework which is followed in the business of Apple.
The businesses need to involve management development situations and always
try to improve the business structure of the company (Berry, Broadbent and Otley
2016). The innovative framework of a business is appropriately managed with the help
of appropriate management of resources of the business and proper use of the
resources as well.
In addition, it has been found by analysing the case of Canon Inc that there has
been revitalisation of different product lines owing to the spin offs for developing mini
copier. In the case of Apple, the management of the company has played a vital role in
enhancing opportunities in the business and also leading to growth and creation of more
opportunities in the business.
The discussion which is conducted above shows that the management
accountants are considered to be the decision makers as well as providers of
information since they assist in the operations of the business in an effective manner.
The analysis of Journal article shows that the management of both the companies need
to take initiatives in order to develop the business environment and encourage
innovative ideas which could ultimately transform the business entirely. The
organizations need to effectively identify the opportunities which is present in the market

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