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

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