HI5017 Management Accounting Case Study Analysis and Journal Review

This case study report analyzes the application of management accounting principles in decision-making processes. Part A examines a case involving a retired couple planning to open a child care business, utilizing cost-benefit analysis to determine optimal choices regarding laundry services, employee hiring, and facility expansion. It explores different cost types (fixed, variable, and sunk) and their relevance in decision-making. Part B reviews a journal article, critiquing how management accounting concepts influenced innovation at Canon Inc. and Apple Computer Inc. The report highlights the use of constraints, goal-directed approaches, and leadership styles in fostering innovation and achieving business objectives. Overall, the analysis demonstrates how management accounting aids in cost control, profitability enhancement, and strategic decision-making in diverse business scenarios.

Management Accounting Case Study Analysis
Introduction
This report is a case study based analysis of how management accounting helps in
deciding on the best course of action. The passage of relevant information from the
management accountancy helps individuals take decision on business operations
related to costs and profitability.
Business around the world exists for profit and this profit comes from sales and
estimation of costs. Cost reduction is one way of increasing or maximizing the
profits. Decision on relevant costs is where the concept of management accountancy
comes handy.
Here, we have analyzed the role of management accountancy under two completely
different situations:
1. A retired old couple planning to open a child care business at their home in
Texas needs help on decision related to costs and profitability by using Cost
Benefit Analysis.
2. Literature review of innovation by two industry giants namely Canon Inc. and
Apple Computer Inc. to identify how management accountancy has helped
them achieve what they wanted to.
Management accountancy is a continuous process of information flow (Information
on costs, budgets, revenues, etc.)
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Solution to Part A: Case Study Analysis
In the first part a case study on a retired couple is given. They want to open a child
care facility at their home called Nanna’s House in Olliva, Texas. The couple has
collected information on costs, alternatives and wants us to guide them on the best
course of action.
Solution to Question 1:
The couple has information on various costs that they must incur for running the
business of the child care. These costs are of varied nature. The 3 different types of
costs which have been mentioned in the unit are as below:
Sl
No.
Type of
Cost Cost Description Example from
the case
1 Fixed
Cost
These costs are fixed in nature indicating they do not
change with the level of operation or activity level of the
company. They must be paid at fixed intervals by the
company and generally irrelevant for any decision
making as they are unavoidable and must be paid.
Annual State
License fee of
$255
2 Variable
Cost
These costs are variable in nature indicating they do
change with the level of operation or activity level of the
company. They are paid based on the activity level and
changes with each change in the activity of the
company. These costs are relevant for decision making
as they are avoidable.
Cost of meals
and snacks
per child per
day - $3.20
3 Sunk
Cost
These are costs which have incurred in the past and
now cannot be reversed. They are irrelevant for any
decision making as they have already been paid. They
are generally one time lumpsum payment, the benefits
of which are reaped for a longer period of time.
Cost of the old
appliances -
$440
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Solution to Question 2:
The couple has an alternative of purchasing the appliances from the market and do
the laundry themselves at their home. All the information as given in the case study
is not relevant to the couple.
The information which seems to be relevant to the decision related to purchasing of
the appliances is:
a. Information on costs of other alternatives available for laundry services which
includes hiring of services of Red Oak Laundry and Dry Cleaning or going to
the Laundromat once a week.
b. Information on costs associated with purchasing of appliances:
a. Purchase price of the appliances
b. Cost of Additional accessories needed for installation of the purchased
appliances
c. Installation costs of the appliances
d. Delivery costs of the appliances
c. Useful life of the appliances as that will enable the couple compute the
expense on depreciation.
d. Increase in energy cost by the use of appliances at home
e. Purchase cost of the detergent.
On the other hand, information which is not relevant to the decision are:
a. Purchase price of the old appliances
b. Useful Life of the old appliances
c. Information on renovation cost
d. Information on revenue from each child
e. Information on costs of meals and snacks
f. Information on costs of utilities
These are irrelevant as they are either sunk cost or the fixed cost which will not
change with the decision.
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Solution to Question 3:
The couple at their child care will need to take care of the spoiled clothes of the
children along with blankets and sheets. The couple has identified three alternatives
for the laundry services which are:
Alternative 1: Use the services provided by Red Oak Laundry and Dry
Cleaning at a cost of $52 per month, which includes pickup and delivery of the
clothes.
Alternative 2: Travel to the Laundromat which is 3 miles away from their place
and do the laundry themselves. For this they will have to purchase detergent.
Alternative 3: Purchase the appliances and detergent and do the laundry
themselves at their home only.
The total annual cost to the couple under all the 3 alternatives is computed as below:
Alternative 1: Use the services provided by Red Oak Laundry and Dry Cleaning
Computation of Total Annual Cost
Monthly charges for pickup and delivery
(A)
$52
Number of months in a year (B) $12
Total annual cost (A*B) $624
Alternative 2: Travel to the Laundromat and do the laundry themselves
Computation of Total Annual Cost
Driving Costs
Distance travelled per week in miles (3 miles one way) 6
Mileage Rate as given in the problem $0.56
No. of Weeks in a year 52
Cost of Driving (Distance * Mileage * Weeks) (A) $174.72
Cost of Laundering Clothes
Cost to launder per week $8.00
No. of Weeks in a year 52
Cost of Laundering Clothes (B) $416.00
Cost of Detergent
Purchase cost from Megamart per quarter $35.00
No. of Quarter in a year 4
Cost of Detergent (C ) $140.00
Total Annual Cost (A+B+C) $730.72
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Alternative 3: Purchase the appliances and detergent and do the laundry
themselves
Computation of Total Annual Cost
Cost of the appliances
Washer $420.00
Dryer $380.00
Total purchase Cost of the appliances $800.00
Installation cost of accessories $43.72
Delivery charge of the appliance $35.00
Total cost of the appliance $878.72
Expected Life 8
Annual cost of the appliances (A) $109.84
Increase in Energy Cost ($120 + $145) (B) $265.00
Cost of Detergent
Purchase cost from Megamart per quarter $35.00
No. of Quarter in a year 4
Cost of Detergent (C ) $140.00
Total Annual Cost (A+B+C) $514.84
Summary:
Thus the costs to launder the clothes under all the 3 options are:
Alternative 1: Use the services provided by Red Oak Laundry and Dry
Cleaning at a cost of $52 per month, which includes pickup and delivery of the
clothes - $624
Alternative 2: Travel to the Laundromat which is 3 miles away from their place
and do the laundry themselves. For this they will have to purchase detergent -
$730.72
Alternative 3: Purchase the appliances and detergent and do the laundry
themselves at their home only - $514.84
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Solution to Question 4:
The couple wants to analyze the option of employing one extra employee and thus
add 3 more children to their day care. The decision on this will be based on the
additional profit that would accrue to the couple with the implementation of this
proposal.
The incremental revenue would be = $800 per child * 3 children = $2,400.
Note: The couple would be able to accept 3 more children. The children are enrolled
at the facility at monthly fees of $800 per child. Thus additional revenue would be
$800 per child for 3 children enrolled additionally.
The incremental Cost would be:
1. Cost of the meals and snacks for the children = $3.20 per child per day * 3
children * 5 days per week * 4.33 weeks per month = $207.84
2. Cost the additional employee = $9 per hour * 40 hours per week * 4.33
weeks/month = $1,558.80
Total incremental cost = Cost of the employee + Meal = $9 per hour * 40 hours
per week * 4.33 weeks/month = $1,558.80
Thus, Incremental Profit = Incremental revenue – Incremental cost
= $2,400 - $1,776.64
= $633.36 per month.
Conclusion;
Simply based on the incremental profit of $633 per month to the couple they should
hire the employee and accept three more children to maximize their profit.
.
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Solution to Question 5:
The couple can consider moving to a larger rented pace which will enable them
accept 12 to 14 children. The decision on this will be based on the maximum profit
that would accrue to the couple with the implementation of the available options.
The available alternatives are:
Alternative 1: Remain at the Nanna’s House and run the child care with either
6 or 9 children (by hiring an additional employee)
Alternative 2: Option B: Move to a larger new facility which can accommodate
a minimum of 12 or maximum of 14 children
The available information on evaluating the options are:
 Rent of the new facility $650
 Cost of utilities at the new facility $125
 Additional insurance $5,000
 Other costs including meals and snacks, laundry, employee hiring, revenue
per child will all remain the same.
Computation of the Net profits under Alternative 1:
Computation of Net Profit
Particulars Calculation rationale Amount Amount
No. of Children 6 9
Revenues No. of child * Fee/child $4,800.00 $7,200.00
Less: Expenses
Cost of Meal No. of child * cost fo
meal/child * 5 days a week
* 4.33 weeks in a month
$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 (Cost / life)/12 months $265.00 $265.00
Rent Own house - NIL $0.00 $0.00
Utilities Given $50.00 $50.00
Employee Cost As in 4 above $0.00 $1,558.80
Total Expenses $1,112.33 $2,878.97
Net Monthly Income $3,687.67 $4,321.03
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Computation of the Net profits under Alternative 2:
Computation of Net Profit
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 * cost fo
meal/child * 5 days a week
* 4.33 weeks in a month
$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
Depreciation (Cost / life)/12 months $0.00 $0.00
Rent Given $650.00 $650.00
Utlities Given $125.00 $125.00
Employee Cost Refer Working Note 1 $3,117.60 $4,676.40
Total Expenses $5,202.28 $6,899.64
Net Monthly Income $4,397.72 $4,300.36
Conclusion:
Considering above computation, the couple should do the following:
1. Move to a larger rented space
2. Hire 2 extra employees
3. Accept 12 children
This will maximize their profit to $4,397 per annum.
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Solution to Part B: Journal Critique Analysis
Here, a case study on two big corporates - Canon, Inc. and Apple Computer, Inc. is
reviewed and analyzed to understand how concepts and components of
management accountancy helped them reach their goal of innovative offerings at an
affordable price to the consumers.
Solution to Question 1:
There are various components of management accountancy which includes
budgeting system, performance management system, team building, cost estimation
and constraints, target prices etc.
The components of management accountancy used in Canon Inc. are as below:
1. Use of Constraints: While the team was working at the product development
of the Mini Copiers, they were given a set target price of anything lower than
Yen 1,000. This enabled the team to keep the development of the product
within the given range at all times during the product development.
2. The company effectively used goal directed approach as set up by their
senior leadership team. The company used a top-down approach when it
came to setting goals and then the team had full liberty, authority and
responsibility to communicate, brainstorm and develop the best product within
the given objective.
The components of management accountancy used in Apple Computer Inc. are as
below:
1. Placing trust and confidence in the product leader. The company chose one
product leader for each project. The leader had the responsibility to direct the
team and lead them to the chosen objective. The leader worked right from
choosing the product features to bringing the product to the market.
2. Performance management system at Apple was robust and each employee or
the team member had equal right and opportunity in the team. The teams met
regularly and worked on the operating system based on the target cost set by
the product champion. The performance system was robust and team
members were evaluated for their efficiency and effectiveness.
Solution to Question 2:
Innovation is what drove the two big giants to a place which is irreplaceable. The
companies innovated their offerings and brought latest technology to the public at an
affordable cost be it the Mini Copiers by Canon Inc. or Macintosh by Apple Computer
Inc. This was possible only because they had relevant information on costs on time.
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The flow of information that fostered Innovation at Canon Inc.
a) The company ensured that the two teams of product development and cost
assessment interacted frequently passing on relevant information every time
on time. This enabled the company to create a technologically advanced
product in the affordable range. The teams processed the information
accurately and arrived at decisions which were beneficial for the profitability of
the company.
b) The company fostered an open culture with each team member contributing
equally to the discussion and ideas came from the lowest rank members as
well. The company had open interaction free from judgments.
The flow of information that fostered Innovation at Apple Computer Inc.
1) The launch of their own sophisticated and highly automated and advanced
operating system by the name of Macintosh was possible only because of the
product leader ownership to the entire process of product development. The
leader helped the team work in a seamless environment that fostered ideas
and growth.
2) The use of internal information on target costs helped the team members
design product that was both technologically and financially feasible. The
setting of the target cost price put pressure and also gave direction to the
team which enable them progress on product development with ease.
Solution to Question 3:
The given case study illustrates use of some brilliant ideas and strategies to achieve
their goals of innovation. The distinct lessons that can be taken from this case study
and applied by the management accountants in Australia are many including
importance of team work, role of senior leadership, Understanding of the ROI of the
business, putting cost constraints on the development team, robust budgeting
system, thrust on team creation among many others.
However, 4 specific outcomes from the article’s research findings that will be useful
for management accountants in Australian companies can be listed as below:
Lessons from Canon Inc.
a) Canon Inc. as a company effectively used their time in creating a team that
was diverse and had representative from all departments in the company. The
team in order to research on the alternative of heavy weight printers created a
product development team that had members from Research and
development department, Marketing, production and quality. This was to
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ensure that the product had focus from each angle in the product and the
efforts are not in vain.
b) Focus on Cost: The team along with a sound product development team,
created a cost assessment team. The objective of the team was to ensure
that the product should at each stage be within the cost constraints put by the
management. The team would continuously monitor the progress of the
product and check the production feasibility of the same in terms of finances.
This should be noted and applied as innovation that will bring losses for the
firm is not desirous. So controlling the cost at the product development stage
gives the firm an edge.
Lessons from Apple Computer Inc.
a) Setting up of Target Costs: In this company, the senior leadership or the
team leader would set up a target cost for the team. This target cost enabled
the team to cross check the cost at each stage of product development. The
team along with the leader had full knowledge on the costs that the company
would be able to afford in order to be profitable. This enabled work towards
the goal in a co-ordinated way.
b) Faith and reliance on the top leaders: The team at Apple Computer Inc.,
placed full confidence, trust, reliance and loyalty to their “Product Champion”
who was none other than Mr. Steve jobs. This is useful as trusting your senior
leadership makes you work in a more organized way and thus helps reach the
goal faster.
Conclusion
As we come to the end of the report, we have seen throughout the report how
availability of relevant timely information helps individuals and corporates take
effective business and real-life decisions with ease. The couple Mr. and Mrs. Frank
came to know with substantial facts that they have maximum profit when they move
to a larger rented space in town. They should hire an extra employee as that will only
maximize their profit. All these decisions were possible by just having a glance at the
reports generated by the management accountant.
Similarly, in big corporates, success was possible only because they had timely
information on costs and profitability at all stages of product development. Thus,
management accountancy as a field is vast and relevant in all business scenarios
across the globe.
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