Managerial Accounting Report: Innovation and Decision Making

This managerial accounting report provides a comprehensive analysis of cost structures, decision-making processes, and innovation strategies. The report is divided into two main parts. Part A delves into a child care business case study, examining fixed, variable, and semi-variable costs, relevant versu...Read More

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:...........................................................................................................................3
Answer to requirement 1:.............................................................................................3
Answer to requirement 2:.............................................................................................4
Answer to requirement 3:.............................................................................................4
Answer to requirement 4:.............................................................................................5
Answer to requirement 5:.............................................................................................6
Part B:...........................................................................................................................7
Answer to requirement 1:.............................................................................................7
Identifying the components of management accounting in each of the two companies
and evaluating their relevance in enabling decisions to be made effectively and
efficiently:......................................................................................................................7
Answer to requirement 2:...........................................................................................10
Contribution of management accounting to innovation process:...............................10
Answer to requirement 3:...........................................................................................12
Findings from research article that would be useful to management accountants in
Australian companies:................................................................................................12
References and Bibliography list:...............................................................................14

MANAGERIAL ACCOUNTING
Part A:
Answer to requirement 1:
The case study presents different types of costs for running the child care
business and the cost comprised of fixed cost, variable cost and semi variable cost.
Fixed cost is the cost incurred by the business irrespective of the total number of the
services delivered that is the costs is independent of number of services being
delivered and is a fixed expense for running the business (Revellino and Mouritsen
2015). Such costs can be incurred either on monthly or annual basis. In the given
case study, fixed charge is the annual fees paid by the married couple to run the
business with the amount at $ 225. Some other fixed costs include the cost of
insurance of $ 3480 on annual basis. In addition to this, there is a fixed cost of
providing meal to children for $ 3.20 per day. However, the license fee is for a
maximum of 6 children and if the service is provided to more than 6 children, there
would be increment in license fee.
Variable costs are the expenses that are incurred by the company in relation
to the variation in the level of activities or services provided by business (Otley
2016.). Therefore, with the change in level of service provided, the variable cost
incurred will also change. The child care business presented in the case study also
incurs some form of variable costs which include utility cost for running the business.
Salary paid to employees is another form of variable cost incurred by the business
as it increases with the services provided to additional number of children.
Another cost that is discussed in the case is semi variable cost which is the
mixed components of both fixed and variable cost. The license fee can be treated as
semi variable cost because it is fixed for a maximum of six children. In addition to
this, the energy cost that is incurred for running the washer and dryer will increase by
$ 120 every year and $ 145 respectively. It is considered as semi variable cost
because it is fixed for one year and changes in value with passing year of
operations. Therefore, from the analysis of the given case study, it has been
ascertained that there are three different types of costs incurred by the child care
business.
Answer to requirement 2:
The information relevant to purchase the appliance is the total amount that
would be invested initially and this includes cost of installation, cost of dryer, cost of
washer, delivery charges that would be incurred for appliances. Another fact that is
to be accounted for is the operating cost that comprise of travelling charges,
laundering charges, additional energy cost of washer and dryer, monthly
depreciation charged for running appliances. In addition to this, it is also to take into
consideration the total annual expenses that would be incurred for laundering the
clothes. On other hand, the information that is not relevant to the purchase of
appliances is the cost of old appliances and the license fees charged by state.

MANAGERIAL ACCOUNTING
Answer to requirement 3:
There are three options that are available to the couple for laundering of
clothes. Under first option, the couple can opt for the rental service from Red oak
laundry and dry cleaning. When opting for the rental service, there is no initial
investment that is to be incurred. It only requires the launder to incur the total
monthly operating expenses of $ 52 and the annual expenses coming to $ 624 which
is the total cash outflow. The second option is to avail Laundromat service for which
there is no initial investment. However, there are operating expenses that is to be
incurred of amount of $ 60.86 with the total annual expenses at $ 730.27. The third
option available to the couple is purchasing new dryer and washer for which it is
required to make total initial investment of $ 878.72 in addition to incurring operating
expenses of $ 42.90. It is also required to account for depreciation of washer and
dryer and the total outflow of cash coming to $ 1384.41. Therefore, from the analysis
of figures, it is observable that the total outflow of cash is lowest when seeking rental
service from launderer compared to other two options and hence option one is
recommended.
Option
1
Option
2
Option 3
Initial Cost:
Cost of Washer $420.00
Cost of Dryer $380.00
Installation Cost $43.72
Delivery Charges of Appliances $35.00
Total Initial Investment $878.72
Operating Expenses:
Monthly Laundering Cost of
Agency
$52.00
Monthly Travelling Charges to
Laundromat
$14.55
Monthly Laundering Charges in
Laundromat
$34.64
Monthly Laundry Supplies for
Laundromat
$11.67 $11.67
Monthly Depreciation of
Appliances
$9.15
Additional Energy cost of
Washer
$10.00
Additional Energy cost of Dryer $12.08
Total Monthly Operating
Expenses
$52.00 $60.86 $42.90
Annual Expenses $624.0
0
$730.2
7
$514.84
Less: Depreciation $9.15
Total Cash Out Flow $624.0 $730.2 $1,384.4

MANAGERIAL ACCOUNTING
0 7 1
Answer to requirement 4:
The decision of Frank to hire additional employees can be evaluated by
performing cost benefit analysis. Benefits are to be measured in terms of revenue
generated per month and the cost is measured in terms of additional charges of
labor per month. Hiring of one additional employee would serve three additional
children and the revenue from hiring additional employee comes to $ 2400. In
addition to this, the additional charge of labor per month comes to $ 1558.80 and
since revenue is more than cost, there is a generation of profit of amount $ 841.20.
However, one thing that should be taken into consideration is the annual license fees
paid is for maximum six children and hiring of additional employee would result in
additional children served for which the license fees would also increase. If including
license fees make total cost less than total revenue earned, then it is recommended
to Frank to hire additional employees.
Amount
Additional Nos. of Children 3
Revenue per Child $800.00
Additional Revenue per Month $2,400.00
Nos. of employee 1
Labour Hour per week 40
Labour Charges per hour $9.00
Additional Labour Charges per month $1,558.80
Additional Profit per month $841.20
Answer to requirement 5:
The decision of renting the space or operating the facility at home can be
evaluated by computation of net profit margin under both types for accommodation.
It is inferred from the analysis of the figures under current accommodation that total
net profit per month is $ 3564.30 with net profit margin of 74.26%. However, under
new accommodation and with increasing number of children serving served, there is
wide fluctuation in the value of net profit margin and it goes on decreasing with
increasing number of children. Therefore, it is recommended to the couple to
continue the facility at home as renting of space would result in declining net profit
margin. The total number of children they should accept to have higher net profit.
Therefore, under the current scenario, it is not required by the couple to hire
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:
This section of the assignment intends to critically evaluate the provision of
accounting system and role of management accounting system in the innovation
process of Apple Inc and Cannon Inc by critically evaluating the journal article titled”
Towards a new theory of innovation and management: A case study comparing
Conon Inc and Apple Computer Inc”.
Answer to requirement 1:
Identifying the components of management accounting in each of the two
companies and evaluating their relevance in enabling decisions to be made
effectively and efficiently:
The concepts of management accounting revolve around three components
that are planning, controlling, strategy and decision making within the firms.
Controlling is the influence of the outcome and evaluation for determining that the
object could be controlled such as process measurement and cost whether outside
or inside the acceptable range. Secondly, planning is an essential component for the
business and it should occur at all levels that would help in maximizing the goals of
maximization of profits. Development of strategy also forms an important part of the
component of management accounting and organization tends to create linkage
between day to day corporate activities and strategic endeavors. Moreover,
evaluation ad accumulation of the information results in consistently good decisions
and decision making process in organization is fuelled by the information provided by
management accounting.
The internal development of Mini Copier by Canon Inc was done by
reconceptualizing the entire plain paper copier market and for this purpose the
introduction of mini copier would require smaller or non maintenance cost at all.

MANAGERIAL ACCOUNTING
Hence, the actualization of Mini copier would require was required to manage the
inverse relationship between cost and reliability. The management of organization
intended to resolve the contradiction between cost and reliability (Nonala and
Kenney 1991). That is the cost of product increased due to improvement in reliability
and increase in service requirement due to reduction in cost. Hence, the problem
associated with the mini copier is to make an improvement in the durability of the
cleaners and drums. Under the new developed method, the drum should be treated
as a module that is discarded after certain numbers of copies are made and the
result would be development of copier that is essentially maintenance free. The
product development was revolutionized due to opening up of new understanding
and substantially added to the capacity of Canon Inc.
Another component of management accounting at Canon Inc was the
assessment of quality and cost group in the planning stage. The quality standard
was set for exposure, charging, and development, fusing and cleaning. Such
development in the planning process had gone considerably far. Moreover, the new
technological development for cartridge would be applied to other product and form a
part of knowledge base of corporation. Therefore, the process of innovation at canon
Inc spread throughout and became continuous. The time period between completion
of product and development of planning was reduced because of task force system.
The decision to reconceptualize the market of plain paper copier and to lower the
cost of maintenance associated with mini copier in light of new development in
technologies facilitated weight reduction, miniaturization and automation of
assembly. The manufacturing technology and product development were taught to
cooperate in a better manner with the help of development of mini copier (Nonala
and Kenney 1991). Therefore, in light of the expansion of the knowledge based and
benefits bought by the enhancement of capability of organization, the decision to
reconceptualize the market was taken using the manufacturing technology section.
The process of product development at Apple Inc also incorporated the
component of the concepts of management accounting. The objective of Apple Inc in
the earlier days was to revolutionize the Mac computers because the higher priced
machine was introduced and the technology developed at Xerox Parc had been
incorporated. With the simultaneous crystallization of solution and problem by the
CEO of Apple Inc, the team of Mac become self organizing that was able to optimize
the interaction of both hardware and software people (Bogoviz and Mezhov 2015). It
was found from the case study that some of the important innovation made by Mac
team could not be reverberated throughout the company because of lack of
coordination between Mac and other members of Apple Inc and lacking technology
transfer. New ideas emerged due to the constant interaction between the Mac team
members. The controlling factor that was used by Apple was to produce Mac
inexpensively by setting up of a highly automated factory by setting low target price.
The role of the CEO as product development was critical because of the
complications involved in the process of development (Hopper and Bui 2016).
Furthermore, decision making in the organization was enhanced because of the role
of Steven as final arbiter of decision. His role of product visionary resulted in the
positive aspects. In addition to this, rethinking of the features of personal computers
was faced with some difficult challenges. The new innovation that was planned in
the development of Macintosh computers was that such computers should have
base dimensions of computer book that made the computer more compact and gave
a distinct design (Nonala and Kenney 1991). Therefore, it has been ascertained that

MANAGERIAL ACCOUNTING
decision making and controlling were the important contributors in the development
process of Macintosh.
Answer to requirement 2:
Contribution of management accounting to innovation process:
Management accounting is a set of procedures and process that is used by
mangers to provide valuable and useful insights in planning, monitoring and process
of decision making. The success of innovation prices in organizations are enhanced
with the help of management accounting and control system. Innovation helps
organization in promoting the search of new markets brought by the differentiation.
With the development of management accounting techniques, there is a way forward
to innovation for the organization that helps in contribution in terms of technological
competences, uniqueness of products, small domestic market and competitive
pressure. It has also been argued that the flexibility and freedom required by the
innovation would be eliminated by traditional methods of management accounting
because of its control and command culture.
In this section, the contribution of management accounting to the innovation
process of Apple Inc and Canon Inc has been discussed by providing two examples
discussed in the journal article. It was indicated by the case of both companies that
innovation is regarded as the process of creating information that arose out of social
interaction. The process of product development at both Canon and Apple Inc was
facilitated by the innovation drawn from the planning and controlling components of
management accounting. Management of these organizations is done on the profit
center analysis and return on investment.
The innovation process at Canon in the recapitalization of the entire plain
paper copier was based on the human activity based not on induction or deduction.
The new solutions concerning the contradiction of Copier was brainstormed by
gathering of the project teams outside the workplace. With meeting up of people, the
innovation that evolved was development of drum as module that after laming certain
number of copies should be discarded and this would help in making copier
essentially maintenance free.
Another innovation was the development of disposable apparatus, photo
receptor and toner fuser within the target cost. The innovation was made in
manufacturing the drum at lower cost by providing the task members an insight into
the conceptual linking between beer example and drum as the disposable beer can
was inexpensive because it could be disposed (Quattrone 2016). Such innovation
added substantially to the capability of firm and revolutionized development of
product.
New ideas and features in the development of Macintosh computers by Apple
Inc evolved due to constant interaction between the Mac team members. The
problems created by the team members in the development of the computers
stimulated other team members to develop solution and thereby creating problem.
The innovation in rethinking of the features of personal computers by accounting for
the transformative role of telephones and basing the dimension of telephone book to
new computer. This provided Mac with distinctive design and more compact look.

MANAGERIAL ACCOUNTING
The funneling of resources into the Mac project translated the visions into the real
product and the difficult part of the project was conceptualized with the help of
analogies and metaphor.
Answer to requirement 3:
Findings from research article that would be useful to management
accountants in Australian companies:
The development of product was different in case of Apple Inc and Canon Inc
and the innovation represented by both the organization were also different. The
development of product in large Japanese company was quite different from the
chaos of Silicon Valley. The growth in the company such as Apple is ensured by the
constant flow of new entrepreneurs and creation of venture capital. On other hand,
growth at Japanese firm which is marked by highly competitive market place, the
growth is ensured by the constant flow of innovation (Walker et al. 2015). Therefore,
in a rapidly changing economy, it is required by the firms to create an environment
where the new ideas are transmitted are created throughout the firms.
Secondly, organizations are required to have careful and involved
management that helps in creating an environment where chaos results in
emergence of new information. Such chaos can be created by way of introduction of
acquisition and merger activities.
Thirdly, the theoretical project was provided with the raw material because of
innovation process with such raw material reconceptualizing the process of
innovation as the human based activity was not based on induction or deduction.
Therefore, such emphasis must be placed on synthesis and emergence.
Furthermore, it was ascertained from the analysis of the case of Canon that a
number of other product lines was revitalized because of spin offs of creating mini
copier. Therefore, the transformative capability of company is regarded as the
powerful stimulus that helps in propelling the company forward. Therefore, it is
required by innovating firm to create an environment that would help in creating
information and transmit and amplify the newly created information through by
structuring the institutions (Askarany 2016).
Now a day with growing complexities and innovation development process at
organization, management accountants are regarded as decision makers in addition
to the information provider as they help in effectively and efficient running of
business. In light of the findings generated from the analysis of the journal article
concerning the case of innovation in both the companies, it is essential for them to
create an environment that helps in creating and generating new ideas that can be
transmitted through the firms. They need to have gained an understanding of the fact
that function of accountants should be done by inducting chaos into the division of
research and development (Malmi 2016). However, such chaos should not be
overwhelming so that the integrative capabilities of companies are overloaded.
In addition to this, they should be well acquainted with the fact that the
transmission of semantic information is not consistent with the syntactic information
communication that is created by channel. Furthermore, the flow or transmission of
new information throughout the firm in a highly divisionalized structure of

MANAGERIAL ACCOUNTING
bureaucracy firms is hindered and stifled by the boundaries between the different
parts of corporation. They should be able to understanding that the role of leader that
attempts to maximize the creation of information is that of a catalyst. Such
generation of chaos is initiated by leaders along with creation of context for choosing
relevant people (Lind 2017). This will help them in accelerating of their realization of
vision and overcoming the barriers. Moreover, the creation of conceptualizations and
understandings can be created by use of metaphors and analogies and they are
found to be more useful than proofs and syllogisms.

MANAGERIAL ACCOUNTING
References and Bibliography list:
Askarany, D., 2016. Attributes of innovation and management accounting
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Bedford, D.S., 2015. Management control systems across different modes of
innovation: Implications for firm performance. Management Accounting
Research, 28, pp.12-30.
Bogoviz, A. and Mezhov, S., 2015. Models and tools for research of innovation
processes. Modern Applied Science, 9(3), p.159.
Bromwich, M. and Scapens, R.W., 2016. Management accounting research: 25
years on. Management Accounting Research, 31, pp.1-9.
Farinha, L., Ferreira, J. and Gouveia, B., 2016. Networks of innovation and
competitiveness: a triple helix case study. Journal of the Knowledge Economy, 7(1),
pp.259-275.
Hemmer, T. and Labro, E., 2017. Management Accounting and Operations
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Hopper, T. and Bui, B., 2016. Has management accounting research been
critical?. Management Accounting Research, 31, pp.10-30.
Lin, H.F., Su, J.Q. and Higgins, A., 2016. How dynamic capabilities affect adoption of
management innovations. Journal of Business Research, 69(2), pp.862-876.
Lind, J., 2017. The role of accounting for managing innovation processes when
relationships matter. IMP Journal, 11(1), pp.7-24.
Lopez-Valeiras, E., Gonzalez-Sanchez, M.B. and Gomez-Conde, J., 2016. The
effects of the interactive use of management control systems on process and
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Malmi, T., 2016. Managerialist studies in management accounting: 1990–
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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.
Otley, D., 2016. The contingency theory of management accounting and control:
1980–2014. Management accounting research, 31, pp.45-62.
Quattrone, P., 2016. Management accounting goes digital: Will the move make it
wiser?. Management Accounting Research, 31, pp.118-122.
Revellino, S. and Mouritsen, J., 2015. Accounting as an engine: The performativity of
calculative practices and the dynamics of innovation. Management Accounting
Research, 28, pp.31-49.
Walker, R.M., Chen, J. and Aravind, D., 2015. Management innovation and firm
performance: An integration of research findings. European Management
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