Managerial Accounting: Cost Analysis and Decision-Making Report

This managerial accounting report provides a comprehensive analysis of cost structures and decision-making processes within a child care business context. The report begins by classifying costs into fixed, variable, and semi-variable categories, providing examples from the case study. It then examines relevant and irrelevant information for purchasing appliances, emphasizing the importance of cost accounting in managerial decisions. The report further analyzes three options for laundering clothes, recommending the most cost-effective choice. A feasibility analysis is conducted to determine the profitability of hiring additional employees, followed by an assessment of renting space versus operating from the existing location. The analysis includes detailed financial tables comparing different scenarios and their impact on net profit margins, ultimately recommending that the business continues operating from its current location. The report concludes by examining the application of managerial accounting principles, using case studies from Canon Inc. and Apple Computer Inc. to illustrate the concepts.

Running head: MANAGERIAL ACCOUNTING
Managerial accounting
Name of the student
Name of the university
Student ID
Author note

MANAGERIAL ACCOUNTING
Table of Contents
Part A:...........................................................................................................................2
Answer to requirement 1:.............................................................................................2
Answer to requirement 2:.............................................................................................2
Answer to requirement 3:.............................................................................................2
Answer to requirement 4:.............................................................................................2
Answer to requirement 5:.............................................................................................2
Part B:...........................................................................................................................2
Answer to requirement 1:.............................................................................................2
Answer to requirement 2:.............................................................................................3
Answer to requirement 3:.............................................................................................3
References and Bibliography list:.................................................................................3

MANAGERIAL ACCOUNTING
Part A:
Answer to requirement 1:
Depending upon the application and nature, there can be various
classifications of costs. From the analysis of the case study, it can be observed that
the business of child care incurs three different types of cost. These costs include
fixed cost, variable cost and semi variable costs. There are several components of
cash that has been incorporated in the case study. The first cost that has been
observed is the fixed cost. Fixed costs are those costs which remain constant
regardless of the production volume or the service provided. That is they will not vary
with the change in output level and would remain fixed throughout. In the given case
study, for running the child care business, there are two fixed costs that are incurred
such as insurance cost and license fee. The license fees paid by the couple to the
state are $ 225 and they also incur insurance cost of $ 3840 on annual basis. One
point that should be notes is that the license fee paid for running the business is that
it grants the limit of serving 6 children. In case, the business intends to take care of
more than 6 children, then the license fee payable by the business would increase.
Another cost that has been found is the variable cost. Variable cost is the cost
that varies in proportion to the level of output or services provided. It means that the
costs incurred would increase or decrease when there is an increase or decrease in
the level of services provided and output produced. Some of the variable cost that is
incurred by the child care business is utility cost and cost of providing meal and
snacks is also a variable cost. It is so because this cost would increase with increase
in the number of children being served. Another variable cost that can be considered

MANAGERIAL ACCOUNTING
to be the variable cost is the total amount of salary that is payable to employee
(Joshi & Li, 2016).
Semi variable costs are the costs that remain fixed for certain period of time and it
increases thereafter. It means that the semi variable cost is the combination of both
variable and fixed cost. Some of the semi variable cost that is incurred by the child
care business are utility cost, energy cost of running washer and dryer along with the
cost of meal and snacks.
Answer to requirement 2:
This section discusses about the information that is relevant and should be
considered by the couple to purchase the appliances. The managerial decision taken
by the entrepreneur is dependant upon the aspect of cost accounting. It is seen that
for laundering the soiled clothes of babies, the couple is seeking to purchase the
appliances. For purchasing the appliance, the couple is required to take into account
relevant information such as cost of installing the machine, cost of purchasing the
washer and dryer and delivery charges for purchasing the appliances. In addition to
this, Frank is also required to consider the factor such as operating expenses which
include energy cost of running the dryer and washer, travelling charges, laundry
supplies and laundering charge along with the depreciation charges. Such costs help
in accounting for the total outflow of cash and the total annual expenses that would
be required to purchase and install the new appliances. The information that is
considered irrelevant for purchasing the appliances is the cost of old appliances and
the license fees along with the insurance cost (Kianto et al., 2017). This is so
because for purchasing the new appliances, it is not required to consider the cost of
old appliances.

MANAGERIAL ACCOUNTING
Answer to requirement 3:
In this section, the cost that would be required to incur for laundering the
clothes is depicted. The couple is provided with three options for laundering the
clothes. In the first option, couple can opt for rental service from the laundry service
provider. It is observed that there are no initial costs of investment and it includes
only operating expenses $ 52. Total amount of annual expenses that would incurred
for renting the laundering service is $ 624. Therefore, the total outflow of cash for
renting the service is $ 624.
The second option that is available is to opt for laundering services is the
operating expenses and the operating expense comprise of travelling charge,
laundering charge and laundering supplies and this makes the total operating

MANAGERIAL ACCOUNTING
expense to $ 60.86. The total annual expenses and the total outflow of cash that
would be required to incur is $ 730.27. Now, looking at the third option which
requires the couple to purchase dryer and washer, it is observed that the couple
would be required to incur initial investment along with the operating expenses. Total
cost of investment includes installation cost, cost of purchasing dryer and washer
along with the delivery charges of appliances. The total amount that should be
invested at the initial level is $ 878.72. In addition to this, there are other operating
expenses that is to take into account is energy cost of dryer and washer,
depreciation charge and supply if laundry for Laundromat. The annual expenses that
would be incurred are $ 514.84 and the total outflow of cash is $ 1384.41. From the
analysis of above figures, it is ascertained that the maximum outflow of cash is in
third option. However, the couple would have to incur minimal annual expenses of $
514.84 when they are opting to purchaser dryer and washer. When looking at the
option of total cash flow, it is observed that the renting the service from Red oak
laundry and dry cleaning would have the minimal outflow of cash. Therefore, from
the analysis of figures, t is inferred that the couple should consider option one.
Hence, it is recommended that couple should opt for renting the service from Red
oak laundry and dry cleaning.
Answer to requirement 4:
This section evaluates the benefits or loss that would occur when the
additional employee is hired for the business to take care of additional children.
Amount
Additional Nos. of Children 3
Revenue per Child $800.00
Additional Revenue per
Month
$2,400.0
0

MANAGERIAL ACCOUNTING
Nos. of employee 1
Labor Hour per week 40
Labor Charges per hour $9.00
Additional Labor Charges
per month
$1,558.8
0
Additional Profit per month $841.20
The above table depicts the computation of additional benefit that would arrive
when the couple would hire additional employees. It is seen from the case study that
the additional employee is hired for $ 9 per hour. It is observed that the additional
revenue that would be generated per month is $ 2400. In addition to this, the
additional charges of hiring labor are $ 1558.80. It is clearly observable that
additional revenue generated is more than the cost that is incurred. Therefore, hiring
of additional employee would generate profit of amount $ 841.20. Moreover, there is
one cost that should be accounted for is the license fee. In the current scenario, the
license fee paid is for providing care is permitted for six children. However, hiring of
one additional employee would be able to take care of additional three children that
are a total of nine children would be taken care of. If additional license fee paid
increases the total charges of hiring labor and become excess of the revenue
generated, then it would not be viable to hire extra labor (Rikhardsson &
Yigitbasioglu, 2018). Under the current scenario as presented, the couple should hire
additional employee.
Answer to requirement 5:
In this section, it is required to conduct the feasibility analysis of renting space
and running the facility in the existing place. Renting of space would be able to
provide service to maximum of 14 children. This would involve utility cost and space

MANAGERIAL ACCOUNTING
cost of amount $ 125 and $ 650 per month. In addition to this, there will be increased
cost of $ 5000. In order to determine which of the two options would be viable, the
net profit margin generated is compared along with the total expenses that are
incurred by the business.
Under the current accommodation, it is seen that the couple has to incur total
expenses of $ 1235.70 with the total net profit generated is at $ 3564.30. The total
net profit margin is 74.26 %. Now, considering the situation under new
accommodation when the maximum of 14 children can be taken care of, it is
observed that the total amount of expenses incurred is increasing with increasing
number of children served. Net profit margin on other hand is decreasing on the
continuous basis from 62.66% in case of serving six children and 35.32% in case of
14 children. Therefore, from the analysis of the figures in both the cases, it is
observed that business under the existing accommodation is generating higher net
profit margin compared to facility under the rented space. Hence, it is recommended
that the couple should continue operating the facility at their home instead of renting
the space. Consequently, it would be viable to serve a total of six children that does
not require hiring of any employees.

MANAGERIAL ACCOUNTING
Current
Accommodation
New
Accommodation
New
Accommodation
New
Accommodatio
n
New
Accommodation
New
Accommodatio
n
New
Accommodation
New
Accommodation
New
Accommodatio
n
New
Accommodatio
n
Nos. of Children 6 6 7 8 9 10 11 12 13 14
Revenue per Child per month $800.00 $800.00 $800.00 $800.00 $800.00 $800.00 $800.00 $800.00 $800.00 $800.00
Cost of Meals and Snacks per child p.m. $96.99 $96.99 $96.99 $96.99 $96.99 $96.99 $96.99 $96.99 $96.99 $96.99
Nos. of Employees Required 0 0 1 1 1 2 2 2 3 3
Salary per employee p.m. $1,558.80 $1,558.80 $1,558.80 $1,558.80 $1,558.80 $1,558.80 $1,558.80 $1,558.80 $1,558.80 $1,558.80
Total Revenue p.m. $4,800.00 $4,800.00 $5,600.00 $6,400.00 $7,200.00 $8,000.00 $8,800.00 $9,600.00 $10,400.00 $11,200.00
Total Cost of Meal & Snacks ($581.95) ($581.95) ($678.94) ($775.94) ($872.93) ($969.92) ($1,066.91) ($1,163.90) ($1,260.90) ($1,357.89)
License Fees per month ($18.75) ($18.75) ($18.75) ($18.75) ($18.75) ($18.75) ($18.75) ($18.75) ($18.75) ($18.75)
Insurance p.m. ($320.00) ($416.67) ($416.67) ($416.67) ($416.67) ($416.67) ($416.67) ($416.67) ($416.67) ($416.67)
Utility Cost p.m. ($50.00) ($125.00) ($125.00) ($125.00) ($125.00) ($125.00) ($125.00) ($125.00) ($125.00) ($125.00)
Depreciation of Building p.m. ($265.00)
Rent p.m. ($650.00) ($650.00) ($650.00) ($650.00) ($650.00) ($650.00) ($650.00) ($650.00) ($650.00)
Salary of Employee $0.00 $0.00 ($1,558.80) ($1,558.80) ($1,558.80) ($3,117.60) ($3,117.60) ($3,117.60) ($4,676.40) ($4,676.40)
Total Expenses ($1,235.70) ($1,792.37) ($3,448.16) ($3,545.15) ($3,642.14) ($5,297.94) ($5,394.93) ($5,491.92) ($7,147.71) ($7,244.70)
Net Profit per month $3,564.30 $3,007.63 $2,151.84 $2,854.85 $3,557.86 $2,702.06 $3,405.07 $4,108.08 $3,252.29 $3,955.30
Net Profit Margin 74.26% 62.66% 38.43% 44.61% 49.41% 33.78% 38.69% 42.79% 31.27% 35.32%
Part B:
Answer to requirement 1:
Managerial accounting is the procedure of evaluating the financial data and
cost structure to assist the organization in the process of decision making. Various
large organizations operating globally have implemented the application of tools of
managerial accounting. This has been presented in the journal article titled” Towards
a theory of new innovation management: A case study comparing Canon Inc and
Apple computer Inc that demonstrate the application of tools and principles of
managerial accounting in their process of product development.

MANAGERIAL ACCOUNTING
In the technologies industry, Canon Inc leads the market in photocopier
segment whereas Apple Inc is the market leader in manufacturing of innovative and
premium computers. Competitive advantage of the organization in producing any
product is the success that is dependent on the sound management and the core
competencies of company. It is required by the companies to embrace innovation in
the ever changing technological markets in terms of their costing and managing the
products. It can be cited from the case study that is demonstrating the case of Apple
Inc and Canon Inc that is emphasizing on one of the important aspects of
management accounting that is the process of sharing and creating information.
When studying the case of Canon Inc, it is seen that the development of the new
product that is mini copier has been done by complete restructuring of entire plain
paper copier market (Nonala and Kenney, 1991). It can be observed that the Canon
Inc also incorporated the components in their innovation process of developing mini
copier. For this purpose, a feasibility group was formed by the company by taking
personnel from different departments. The management of the company intended to
make effective and conscious decision by forming the group comprising of
executives from various department of organization (Kastberg & Siverbo, 2016).
Moreover, the manufacturing managers from the integrated part of the team because
Apple intended to build highly automated factory that would be capable of producing
the Macintosh inexpensively by setting lower target price. For the development of
Apple Macintosh, it can be seen that Steve struggled to build the product as building
of Mac separately created conflict and this resulted in the lack of coordination
between group of Mac and other divisions of Apple and due to the lack of transfer of
technology. It was the string management of organization that contributed to the
successful development of product due to continuous interaction between the team

MANAGERIAL ACCOUNTING
and transmission of information within the team that resulted in creation of
innovation.
The system of sharing and transmitting information by way of innovation
brought by the application of various tools of management accounting system has
provided opportunities to companies to make their product cost effective and
innovative. Furthermore, it can also be said that excellent innovation in the operating
segment of organization has resulted due to harmonization and collaboration due to
closely working of managers and engineer along with personnel from different
departments (Zott & Amit, 2015). Therefore, from the above discussion, it can be
concluded that the decision making process in the organization can be improved and
become effective due to the application of techniques and tools of managerial
accounting.
Answer to requirement 2:
The management accounting system of the organization has evolved
considerably due to embracing innovation as the accounting system helps in
addressing the challenges faced by the company in uncertain operating settings.
There are no existing reviews that have built upon the development of innovation in
the management accounting system. The current journal article is a contribution to
the literature of managerial accounting by exploring the product development
process at Canon and Apple Inc (Nonala and Kenney, 1991). The process of
innovation has been outlined in the creation and sharing of information in an effective
and efficient manner by the management of the firm. It can be seen that such
proposition is true as the process of management in these firms incorporate analysis
and transmission of information that can be financial as well as non financial. The

MANAGERIAL ACCOUNTING
information system of business can be utilized efficiently by analyzing the business
activities that takes into account both the relevant financial and non financial
information (Bromwich & Scapens, 2016).
The case study of Canon Inc and Apple Inc has presented innovation as the
process that helps in creating the information that arises from the interacting socially
between the team members. Innovation facilitated the development of product at
both the organizations and it was drawn from controlling and the planning
components of managerial accounting (Nonala and Kenney, 1991). At canon, the
human activity formed the basis of recapitalization of entire plain paper copier and
not on the deduction or any induction. Gathering of personnel outside the workplace
resulted in brainstorming of the solutions for contradicting the copier. The innovation
of making copier maintenance free was made by drum development that would lame
the copier after certain number has been produced (Mancini et al., 2017).
The Macintosh computer was evolved by adding new features and ideas that
was generated due to constant interaction between the development technical team.
The CEO of the company that is Steve played a critical role in the development of
product as he rethought about the existing computer features by accounting for the
telephone transformative role and based the new computer dimension to that of
telephone book (Nonala and Kenney, 1991).
Answer to requirement 3:
From the analysis of the journal articles, some of the relevant findings were
generated that would be useful to the management accountants of Australian
companies. The article has presented the importance of innovation brought by the
transmission and creation of information in the decision making process. It is