Management Accounting System Components: Case Studies of Canon Inc. and Apple Computer Inc.

This article discusses the components of the management accounting system using case studies of Canon Inc. and Apple Computer Inc. It highlights the importance of efficient costing system, robust budgeting system, accurate forecasting and planning, timely performance management, and cost management and control.

Part A - Case Study Analysis
Answer to Question 1:
The couple wants us to highlight alteast 3 types of cost which has been mentioned in
the case using the information provided by them.
The 3 distinct types of cost provided in the case study are:
1. Fixed Cost: These are costs which are stagnant and do not change with the
change in business level of the company. These are costs which must be
incurred by the company even if the operations of the company are
interrupted for any reason. Example of fixed cost in the study is the fixed
payment of Insurance for a sum of $3,840 annually.
2. Variable Cost: These are costs which are not stagnant or fixed and changes
with the change in business level of the company. These are costs which
must be incurred only when the company is operating or running. Example of
variable cost in the study is the variable expense of $3.20 on meals and
snacks per child.
3. Sunk Cost: These are generally capital cost which has been incurred in the
past and now no business decision can change or reverse it. This makes this
cost irrelevant for the purpose of decision making. Example of a sunk cost in
the unit is the renovation cost of the house $79,500. This is capital in nature,
irreversible and the benefit of this will be period longer than 1 year (in this
case the benefit will be for 25 years)
Answer to Question 2:
The concept of relevant cost envisages that those costs which are unavoidable and
must be incurred if the decision of the business is taken. These are relevant to the
decision making as the profitability of the decision will be affected.
Here, in the given unit, Mr. and Mrs. Frank plan to open a day care facility for the
children. With this, they must arrange for laundry of the spoiled clothes of the
children enrolled. For doing laundry they have various options one of which is
purchasing the appliances and doing the laundry themselves. The relevant cost
pertaining to this decision of purchasing the appliances is listed as below:
 Purchase cost of the appliances (washer and a dryer)
 Life of the appliances
 Installation cost of the purchased appliances
 Delivery charges of the appliances till the day care
 Cost of additional accessories which are required for installation
 Cost of increased energy due to the running of the appliances.
The information or costs which are irrelevant to the decision of purchasing the
appliances is listed as below
 Purchase cost of the old appliances
 Life of the old appliances
 Information of costs on meals, additional employee, and license fee,
insurance are all irrelevant to the decision on purchasing the appliances.

Answer to Question 3:
The couple must arrange for laundry of the spoiled clothes of the children enrolled at
the day care facility which they plan to open at their home after retirement.
The couple based on research and feedbacks have highlighted 3 options that they
have to make arrangement for the laundry of the clothes. These 3 options are as
below:
A. Outsource the laundry service to Red Oak Laundry and Dry Cleaning in the
town.
B. Do the laundry In house at their home by themselves with the help of
purchased appliances and detergent from the megamart.
C. Do the laundry themselves by purchasing detergent from the megamart and
travelling to the Laundromat which is 3 miles away from their home.
The decision on this area will be made on the cost perspective, that is to say the
option will leads to the lowest annual cost must be selected by the couple.
The cost computation under each of the above mentioned options is as under:
A: Outsource the laundry service to Red Oak Laundry and Dry Cleaning in the
town
Total Annual Cost
Monthly charges by the company $52
Number of months in a year $12
Total annual cost for pickup/delivery service
(Monthly charges * 12 months) $624
B. Do the laundry In house at their home by themselves with the help of
purchased appliances and detergent from the megamart.
Total Annual Cost
Cost of the appliances : Washer $420.00
Dryer $380.00
Total Cost of both the appliances $800.00
Installation cost of the accessories $43.72
Delivery charges $35.00
Total cost of the appliance $878.72
Expected Life 8
Annual cost of the appliances (A) $109.84
Increase in Energy Cost (B) $265.00
Cost of Detergent : Purchase cost per quarter $35.00
Total Cost of Detergent ($35 * 4 qtrs) (C ) $140.00
Total Annual Cost (A+B+C) $514.84

C. Do the laundry themselves by purchasing detergent from the megamart and
travelling to the Laundromat which is 3 miles away from their home
Total Annual Cost
Distance travelled per week (3 miles one way) 6
Mileage Rate $0.56
No. of Weeks in a year 52
Cost of Driving (6 * $0.56 * 52) $174.72
Cost to launder per week $8.00
No. of Weeks in a year 52
Cost of Laundering Clothes ($8 * 52) $416
Purchase cost from Megamart per quarter $35.00
Cost of Detergent ($35/qtr * 4) $140
Total Annual Cost $730.72
Summary:
A. Outsource the laundry service to Red Oak Laundry and Dry Cleaning in the
town - $624
B. Do the laundry In house at their home by themselves with the help of
purchased appliances and detergent from the megamart - $514.84
C. Do the laundry themselves by purchasing detergent from the megamart and
travelling to the Laundromat which is 3 miles away from their home - $730.72
Conclusion:
From the above computation and the summary, we see that the couple has the
lowest annual cost under option B and thus the couple should do the laundry In
house at their home by themselves with the help of purchased appliances and
detergent from the megamart
Answer to Question 4:
Here, the couple cites that they have an option to hire one additional employee
which will enable them enrol 3 more children to the facility. The 3 additional children
will bring in more revenue, but the costs will be for the employee and variable cost
per children.
The decision on this can be based on the cost-benefit relationship. The revenue and
costs will be mapped and the proposal will be accepted only when the revenue
exceeds the expenses.
The incremental revenue will be the monthly fees for 3 additional children, which is
$800 * 3 children = $2,400 per month.
The incremental costs to the couple:
1. Cost of the additional employee = $9/hour * 40 hrs/wk * 4.33 wk/month =
$1,558.80
2. Cost for meals and snacks = $3.20/child/day * 3 children * 5 days per week *
4.33 weeks per month = $207.84
Total incremental cost = $207.84 + $1,558.80 = $1,766.64 per month

Net Incremental revenue = Incremental revenue – Incremental cost
= $2,400 - $1,776.64 = $633.36 per month.
Conclusion:
We see that the couple would be able to make an additional net profit of $633.36 per
month with the hiring of the additional employee. Thus, the couple should hire the
additional employee and enrol 3 additional children.
Answer to Question 5:
Here, the couple has an option to move out of their home at shift to a larger facility in
the town that will enable them accommodate a maximum of 14 children and
minimum 12. The couple wants to know whether they should be moving out or not,
and what should be the number of children that they should enrol either ways.
The decision on this aspect will be made on the profitability of the options. The
options available to the couple are as below:
A. Run the day care at Nanna’s Place with 6 children.
B. Run the day care at Nanna’s Place with 9 children.
C. Run the day care at the rented larger space with 12 children.
D. Run the day care at the rented larger space with 14 children.
The net profit computation under each of the above mentioned options is as under:
Option A: Run the day care at Nanna’s House
Particulars Formulae Amount Amount
No. of Children 6 9
Revenues No. of child * Fee/child $4,800.00 $7,200.00
Expenses
Cost of Meal No. of child * $3.20 * 5 *
4.33 $415.68 $623.52
License Fee License Fee/12 months $18.75 $18.75
Insurance Insurance Cost/12 months $320.00 $320.00
Laundry Cost Laundry Cost/12 months $42.90 $42.90
Depreciation $79/500/12/25 $265.00 $265.00
Utilities As mentioned $50.00 $50.00
Employee Cost Computed above $0.00 $1,558.80
Total Expenses $1,112.33 $2,878.97
Net Monthly Income $3,687.67 $4,321.03

Option B: Move to a larger rented space in town
Particulars Formulae Amount Amount
No. of Children 12 14
Revenues No. of child * Fee/child $9,600.00 $11,200.00
Less: Expenses
Cost of Meal No. of child * $3.20 * 5 *
4.33 $831.36 $969.92
License Fee License Fee/12 months $18.75 $18.75
Insurance Insurance Cost/12 months $416.67 $416.67
Laundry Cost Laundry Cost/12 months $42.90 $42.90
Rent As mentioned $650.00 $650.00
Utilities As mentioned $125.00 $125.00
Employee Cost Note Below $3,117.60 $4,676.40
Total Expenses $5,202.28 $6,899.64
Net Monthly Income $4,397.72 $4,300.36
Workings: The employee cost is computed as below:
Working Note 1: Employee Cost
No. of Children 12 14
Employees Needed 1 per 3 child 4 5
Additional Hiring Required - 2 2 3
Cost per hour Given $9.00 $9.00
No. of hours/week Given $40.00 $40.00
No. of week in a
month
52 Weeks / 12
months
$4.33 $4.33
Total Employee Cost Required * Weeks*
rate* hours
3117.60 4676.40
Summary
A. Run the day care at Nanna’s Place with 6 children - $3,687.67
B. Run the day care at Nanna’s Place with 9 children - $4,321.03
C. Run the day care at the rented larger space with 12 children - $4,397.72
D. Run the day care at the rented larger space with 14 children - $4,300.36
Conclusion:
The couple should considering moving to a rented space and enrol 12 children to
maximize their profit at $4,397.72.
 You should move to a larger rented space in town
 Accept 12 children at the new space.
 For this, you will need to hire 2 additional employees.

Part B – Journal Article Critique
Answer to Question 1:
Management accounting can be defined as a system of accounting that supports the
company internally by providing relevant financial information to the management on
time every time. The timely information on costs, benefit, profitability helps the
management take informed decision that will enable run the business very greater
effectiveness and efficiency.
The various components of the system can be:
 Efficient costing system
 Robust budgeting system
 Accurate forecasting and planning
 Timely performance management
 Cost management and control.
The component of management accounting system: For Canon Inc.
Canon Inc. was working on introducing lighter printers in place of heavy weight
printers that were currently used. The team created MC’s or the Mini Copiers. The
company created two different teams for specific purposes:
 The Quality Assessment team, and
 The Cost Assessment team.
The quality assessment team was to focus on improving the product and innovating
them to give unique features and control, while the cost team would monitor them
closely indicating to them the Cost benefit relationship regularly. The aim was to
create a product that is financially feasible so that the efforts of the quality teams are
rewarded and put to use.
Thus, the formation of a specific cost assessment team is the component of the
Management Accounting System that Canon Inc. was using.
The component of management accounting system: For Apple Computer Inc.
Apple Computer Inc. was working in small team closely held and monitored by a
manager who was the “product Champion’. The team used budgeting system to set
budgets for each activity that the team would undertake to bring the most unique
computer to the market. It was Steve Jobs himself who was the “product Champion’”
and closely monitored the activities of the innovation team to ensure that none of the
activities pushes them out of the financial viability zone. Steve Jobs was the person
who used the concepts of management accountants to regulate the prices and
finances. He set up the targets after considering the fact that the company has a
large automated factory that will lower their cost of production. Thus, this valuable
internal information on cost helped the team stay focused, viable and relevant to the
company’s profitability.
Thus, the setting of a lower target price was the budgeting Component of
Management Accounting System that Apple Computer Inc. used.

Answer to Question 2:
Companies innovate their offering to remain competitive and abreast of latest
technological advancements. It is one of the most crucial factors for success in any
organization.
Ideas are the key starting point for any innovation. Every single innovation starts with
an idea to improve the offering, an idea to provide some latest technology, and idea
to solve problem in the most unique way. These helps the organizations grow and
expand and remain at an edge from the other competitors. These ideas can come
from anywhere, from interaction with friends, peers, colleagues, juniors, seniors and
other person whom we meet. They come by observing things around, observing
environment as a whole.
It is indeed “a process of Information Creation”. Companies never work in isolation;
they work in teams, teams that have members from varied backgrounds, culture and
diversity. This keeps the discussion fierce and ideas come from different angles to
the same problem. Team members brainstorm among themselves to find solutions of
the identified problem.
Further, it is true that businesses around the globe run for profit and thus no
innovation is useful if it is not profitable for the company. It is at this point, that the
management accountancy reports help the internal teams to gauge on the Cost
Benefit Relationship of the innovation that they are about to bring. The reports helps
them forecast sales, production, revenues, profits and other key financial parameters
which ultimately enables them take informed decisions.
The use at Canon Inc.
The team at Canon Inc. was able to produce their offering of the Mini Copiers or the
MC’s only because they were sure of the financial viability at each stage of
development. This helped them keep the cost of production at the optimal level to
remain profitable ultimately. The team had the following guidelines:
The MC’s should have negligible or NIL maintenance cost so that the product
is within the reach of the public at large
The target price set for the offering was less than $1,000.
The above constraints that were put on them were a result of the reports generated
by the management accounting system. The teams of the management accounting
department published out useful information on the financial viability.
Another example that indicated that innovation is indeed a process of Information
Creation was the way the team that was working on the MC’s was structured. The
team was a 8 member team with representative from each relevant department
including R&D, production, marketing, and product design.
This team with members from each background ensured that the offering was
studied and taken care of by all the angles in the company in a balanced approach
and that none of the departments can point out loop holes in the plan. The entire
team was firmly stringed to the concept of “Cost-Reliability Improvement” concept
which promotes production of a reliable product within the profitable range.

This constraint put up a lot of pressure on the team as the cost and reliability are
inversely related to each other. Thus, striking the correct balance between the two
was crucial for success.
The use at Apple Computer Inc.
On very similar lines, Apple computer Inc. was working on bringing compact, user
friendly, inexpensive, computers in the market. The team was led by Steve Jobs who
was known as the “Product Champion”. He controlled the operation, design,
production, costs and sales of the product. He was able to set a lower target price for
the product as he was aware of the fully automated factory that the company
boasted of.
Another example is inclusion of representatives from hacking, engineering and
marketing department in the team to ensure that the product is balanced from all
relevant angles.
Answer to Question 3:
The list of 4 specific outcomes or lessons that I have learned from the research
finding of the article “Towards a new theory of innovation management: A case study
comparing Canon, Inc. and Apple Computer, Inc.” that would be useful for
management accountant in Australia is as below:
1. The approach that Canon Inc. followed for innovation of the printers is unique
and must be adhered to by people around. The team was calm and serene in
their approach. It was a well-structured team with members from diverse
backgrounds.
2. The concept of “Cost-Reliability Improvement” to be learnt from Canon Inc. –
Innovations that bring losses to the firm are of no use as ultimately firms
should be able to reap profits from the offerings. Thus, making a highly
reliable product at an extremely high cost is not the best alternative for sure.
3. Role of a senior leader in a team is crucial for the success of any
organization. The leader of the team must be motivating and supportive to the
needs of the project and team members. It was the leader of the team Mr.
Jobs who made team interaction smooth and productive at the same time.
4. Team cohesiveness in the Mac team in Apple Computer Inc. The team at
Apple was a small team with trained people including hackers, engineers,
design, marketing etc. The small team made them have useful intense
discussion ensuring optimization of each aspect of the product including both
hardware and software.

References:
Landry, L. (2017). THE INNOVATION PROCESS: A STEP-BY-STEP GUIDE. [Blog]
Retrieved from https://www.northeastern.edu/graduate/blog/innovation-process/ on
15 May 2019.
Nonala, I. and Kenney, M. (1991). Towards a new theory of innovation management:
A case study comparing Canon, Inc. and Apple Computer, Inc. Journal of
Engineering and Technology Management, 8(1), pp.67-83.
Legaspi, J.L., 2014. The Impact of Management Accounting Literature to Practice: A
Study of Management Accounting Concepts in the Philippines Industries. LAP
LAMBERT Academic Publishing.
Nikoloski, K., 2014. The role of information Technology in the Business Sector.
International Journal of Science and Research (IJSR), 3(12).
Shaikh, S., 2019. Top 13 Types of Cost in Cost Concept Analysis. [online]
Economics Discussion. Retrieved from http://www.economicsdiscussion.net/cost/top-
13-types-of-cost-in-cost-concept-analysis/13509 on 19 May 2019].