Management Accounting Case Studies: Cost Analysis and Decision Making

This document presents a comprehensive case study analysis of management accounting principles, focusing on cost concepts and their application to various business scenarios. The case study explores fixed and variable costs, evaluating outsourcing options, and analyzing the financial implications of hiring employees and relocating a business. It includes detailed calculations and comparisons of different cost structures, such as laundering services and the purchase of new appliances, to determine the most cost-effective solutions. The analysis also considers factors like salary expenses, revenue generation, and net profit calculations to aid decision-making. The assignment further critiques a journal article, examining performance management and the practical application of accounting information in real-world business contexts. The study aims to demonstrate an understanding of cost concepts and their application in decision-making, as well as the ability to critically evaluate accounting information.

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MANAGEMENT ACCOUNTING CASE STUDIES
By (Name)
The Name of the Class
Professor
The Name of the School
The City and State
Date

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Case of Douglas and Pamela
QNS 1: Types of cost
1. Fixed cost. These are types of costs whose value remain constant. They never
change however much production is varied. Examples of fixed costs are rent and
insurance premiums.
2. Variable cost is the opposite of fixed cost. Variable costs keep on fluctuating
depending on the level of production and output. Examples of variable costs include
labor costs. When more labor is needed, then the expenditure on labor is bound to rise.
3. Total cost=sum of cost production which is sum of fixed cost, variable cost, marginal
cost (Wamalarathma, 2011)
QNS 2: Determinant factors for purchase of new appliances
According to Collier (2015), it is important to consider other alternatives available in
place of purchasing new appliances. We are told that the Franks can outsource the
laundering services into the nearby laundering company. The Franks should therefore
evaluate which alternative is cheap between purchasing new appliances and
outsourcing the laundering service. Again the Franks have an option of laundering the
cloths by themselves. This option comes with additional costs of purchasing the
detergents and fabric sheets. The Franks should consider all the costs associated to
each option and then decide on the cheapest alternative.
The information about the old appliances which have already stopped working is not
necessary in this decision. The cost of the old appliances is a sunk cost and it is not
needed in making the decision of whether to purchase new appliances or outsource the
laundering services (Zsambok 2014). This is because the decision should be based on
the available alternative solutions to the problem at hand. The only information which is
important to this decision is the one that offers an option to solving the problem of
laundering the business’s cloths.

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QNS 3: Cost of laundering clothes and Red Oak.
First option: taking clothes to red oak laundry and dry cleaning co.
Cost= U$ 50 monthly.
Second option: taking clothes to Laundromat
Total cost incurred in doing laundry at Laundromat include;
Laundering cost=cost of washing clothes per week*number of weeks in a month
= U$ 8*4.33 =34.64 per month
Transportation=mileage rate*number of mile
=U$ 0.56 per mile*6 mile (to and fro) = U$ 3.36 per week.
Monthly cost=transportation cost per week*number of weeks in a month
= 3.36 per week × 4.33 weeks = $ 14.55 per month.
Detergent or fabric sheets per month = 1/4 cost of detergents subtracted from 3 months
= $ 35/3 = U$ 11.66 per month.
Total monthly cost of washing at Laundromat will include all the costs that the day care
incurred, which include the following
Laundry cost =$ 34.64 per month
Transport = $ 14.55 per month
Detergents = $ 11.66 per month
Total monthly cost = U$ 60.85
Third option: Day care buying of appliances
The third option is for the duo-Douglas and Pamela Frank to purchase and install their
own washing machine I the day care premises. In execution of this plan, they need to

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think about the initial expense and the implication of new equipment on power
consumption.
I have compiled a cost analysis of this case and shown below.
The cost utilities like electricity cost are included in calculations.
Costs
Washer: $420
Dryer: $380
Carriage: $35.
Installation: $43.72.
Electricity bills costs
The dryer will cost $ 145 per year in terms of energy consumption. In 8 year, the total
energy consumption is equal to the cost of energy multiply by 8 years.
$ 145 × 8 years = $ 1 160
The washer will cost $ 120 per year in terms of energy consumption. In 8 years, the
total energy consumed equal to the cost per month times 8 year which is equal to;
$ 120 × 8 years = $ 960
The electricity cost of energy consumed for the period of 8yr = sum of energy consumed
for 8yrs i.e.
= $ 1 160 + $ 960= $ 2 120
The total cost of buying and installing laundry equipment are as below
Washer $ 420
Dryer $ 380
Installation costs $ 43.72
Carriage $ 35

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Electrical bills $ 2 120
Total costs $ 2 998.72
The cost of energy consumption and the cost for buying, transportation and installation
for 1 month equal to the total cost for 8yrs divided by the number of months in 8yrs
Energy consumption for a month = $ 2 998.72/96 months
= $ 22.08 per month.
The 3rd option is easier compared to the first. Despite the fact that the couple need to
spend dearly in purchasing the appliances, the expenditure is a one times expenditure.
After installation of the machines, the day care can launder clothes at a cost fifty percent
less as compared to the initial options.
QNS 4: Considerations for hiring an employee.
Salary expenses
The monthly salary of one employee is equal to the number of hours worked times the
minimum rete pay per hour.
= $ 9*40 hours = $ 360 every week.
The monthly salary of one employee is equal to weekly wage times the number of
weeks in a month
= $ 360 per week × 4.33 weeks (the assumption made there is no employee working
overtime)
= Monthly salary expenses = 360*4.33 = 1 558.80
Other expenses include
Maintenance cost per month = Maintenance cost of a year divided by the number of
months in a year
$ 225/ 12 = $ 18.75

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Insurance per month = insurance cost per year divided by 12, (the number of months in
a year)
$ 3 840/12 = $ 320
Meals and Snack per day per child = $3.2
The cost for snack for 9 children per day = 9 × 3.32 × 5 = $ 149.40 which translates to
$646.90
Daily total of $ 149.40 × 4.33 weeks = $ 646.90
Total Expenses is the sum of all the uncured costs per month these include
Salary for employee = $ 1 558.80
Maintenance cost = $ 18.75
Monthly Insurance = $ 320
Monthly cost of snack= $ 646.90
Total monthly expenses = $ 2 544.45
Revenue generated with one employee to the day care can allow three more children in
the day. This makes the total number of children in the day care to be 9.
Monthly income = the number of children * the day fee per month
800*9 = $ 7 200
To determine the net profit, take all the monthly expenses minus the revenue generated
per month.
Net profit = $ 7 200 - $ 2 544.45
$ 4 655.55
The resulting revenue after deduction of all expenditure is $ 5 205.46 as the net profit.
With such amount of money as the net profit, the two can manage to hire a single
employee to help with duties at the day care. Being able to pay for all the expenses is
what matters. Therefore hiring one employee cannot lead the day care into losses.

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QNS 5: The insight consideration before relocating the day care.
Douglas and Pamela Frank have to ponder about this issue and see what they can
manage. This analysis will give an insight of what is expected and what the two need to
put in. The bottom line is which option will cash in more money than the other between
relocating the day care and remain operating form their home. I analyzed both cases
and the details are as shown below.
Case One: The consideration for operating from home
When this option is embraced, the highest number of kid that can be accommodated at
the day care is nine. This number of children will force the day care to employ one work
to assist in the day care. The list of costs and income that will be incurred and
generated is as follows:
Wages for the employee per month will be
= rate of pay per hour × the number of hours worked in a week × number of weeks in a
month= $ 9 per hour × 40 hours × 4.33 weeks
= $ 1 558.80
Cost of meals
The day care will have to incur the following as the cost of meals for children
Number of children × cost of snack per child in a week × number of weeks in a month
= 9 × 149.40 × 4.33 = $ 646.90.
Other fixed expenses will remain as follows
Maintenance cost = $ 18.75
Monthly Insurance = $ 320
Total monthly expenses = the sum of all the expenses incurred which will include the
following.
$ 1 558.80 + $ 646.90 + $ 18.75 + $ 320

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This will result in $ 2 544.45 as the net expenses.
The revenue generated per month will be as follow
Monthly revenue = number of children times the day care fee per month
= 9 children × $ 800
= $ 7 200
The net profit generated will be the difference between monthly revenue generated and
the net expenses per month
= $ 7 200 – $ 2 544.45
= $ 4 655.55
Case 2: Relocation of the day care to a new place.
Relocation the day care to a new place will enable admission of more children into the
day care. However, additional expenditure will follow because the day care will have
expanded. Such additional costs include the wages for additional employees needed,
and the cost for snacks and meals. Other expenses are insurances, utilities, and
maintenance.
The following analysis is the monthly cost for the day care:
Insurance cost in a month is equal to a year cost/the total number of months
= $ 5 000 per year/ 12 months = $ 416.70
Cost of utilities per month = $ 125
Cost for letting per month = $ 650
Salaries and wages
The accommodation of 14 children will be in a new premise. As per the state regulates,
1:3 is the number of adult to child. Hence, there is need of Douglas and Pamela Frank
to employ at least 3 workers to assist in child caring. The cost in terms of salaries will be
as below

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One employee works for 40 hours in a week.
The pay rate in an hour is equal to $ 9 per hour
The worker’s monthly wage will be
$ 9 × 40 hours per week × 4.33 weeks per in one month
= $ 1 558.80
The total wages for 3 workers will be:
1 558.80 × 3 = $ 4 676.40
The total monthly expenditure is the sum of total expenditure and costs incurred.
Salaries + Cost of letting + Cost of utilities per month + Insurance cost
= 4 676.40 + 650 + 125 + 416.70
= $ 5 868.10
Income generated
The income generated depends on payment fee of children
Total fees =total number of children times the amount of fee for a child in every month.
= 14 × 800 = $ 11 200
The difference between the income generated and the total monthly expenditure=net
profit
= $ 11 200 - $ 5 868.10
= $ 5 331.90.
Case two can be the best option for the set. Relocating to anew place can lead to
accommodation of more children hence, the net profit is inevitable to go up. Net
revenue generated in the first case is $ 5 331.90 per month. Net profit changes
proportionately as related to the children that the day care admits. Therefore, the net
revenue is bound to go up if more children are admitted. The due can make some good

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money if they relocate to a new and spacious place. Spacious place means more
children and more money earned monthly.
Part B: Journal Article Critique
QNS 1
Rule exhibits the following components in its team of management.
a) Performance Management (Tillman & Goddard, 2008), this is the subject in
management that that helps the management team to build the norm of wise and
informed decision-making. After long periods of financial hardships, Canon Company
went back to the drawing board and made a decision to employ workers with
implacable skill- these employees played a major role in decision making. In line with
that, the company employed experts in engineering, chemical analysis, and computer
to efficient execute it functions.
b) Similarly, Apple Company is presented as one that has Strategic management
benefit. With control over this strategy the company was able to upgrade in its
operations. Such strategic operations include, use of adoption of technical technique in
accounting. Despite having only one manager at the top, Apple company was able to
innovate more advanced and user based technological gadgets such the iPhone-which
is still the more sought after handset in the continental US and the world at large.
QNS 2
Management accounting is vital in launching innovative ideas in an organization.
Management accounting is a crucial tool in implementing innovation in an institution.
They are used to check the feasibility of current methods of production and report
their efficiency or flaws. (Van, 2010) suggests that management accounting can
assist in identifying faults and wastage in some sections of production. The moment a
problem is identified in any section of an organization, the organization makes effort
of combating it. In the former case, the company in question had to carry out an
assessment in order to identify the problem with it copier machine. During the

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assessment, experts were employed to assist the company in assessing the
situation.
The many common gathering helped Apple group to conceive the most brilliant idea of
all time. From the many meetings between the staff and the management, an idea
was conceived which made Apple develop the most advanced processors.
Surprisingly, the ides was brought up by an employee with no skill in technical field.
What the employees thought as a mere suggestion turned into a profitable idea (Van,
2010).
QNS 3: Lesson the Australian Companies can emulate.
Companies in Australia need to increase on the frequency of common meetings
between employees and management. Such interactive meetings can give rise to some
idea which can mark the turn of events in the organization. Canon came to realize the
need of shifting it line of operations when in one meeting it was proposed so.
More intensified research involving the external and internal environment of the
company. Canon Company reckoned the problems of its copier after a very involving
research.
Companies need to identify the potential and capabilities of their employed and help
them by promoting and nurturing their ideas. If the idea proves to be worth, the
company should go ahead and fund it. Lack of knowledge in technical field should not
be the cause of seclusion of employees. An idea of a nontechnical worker is what made
Apple the tech giant of today (Ikujiro & Martin , 1991). Conclusively, Australian
companies need to realize the need of hiring knowledgeable employees who
understands what it is like to do business. Canon was able to regain its glory after
bringing in employees who had skills that were required for the tasks.

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References
Ikujiro , N. & Martin , K., 1991. Towards a new theory of innovation management:A case
study comparing Canon, Inc. and AppleComputer, Inc. Journal of Engineering and
Technology Management, 8(2), pp. 67-83.
Tillman, K. & Goddard, A., 2008. Strategic Management Accounting and sense-making
in a Maltination company. Management Accounting Research, Volume 21, pp. 293-316.
Van, V.-D., 2010. Difference uses of Performance measures: The Evaluation versus
reward of production managers. Accounting, Organizations and Society, 35(2), pp. 141-
164.
Wamalarathma, M. B., 2011. Classification of Costs. Journal of Business and
Accounting, 12(4), pp. 2-22.
Collier, P.M., 2015. Accounting for managers: Interpreting accounting information for
decision making. John Wiley & Sons.
Zsambok, C.E., 2014. Naturalistic decision making: where are we now?. In Naturalistic
decision making (pp. 23-36). Psychology Press.