Management Accounting Case Studies: A Comprehensive Analysis

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MANAGEMENT ACCOUNTING CASE STUDIES
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CONTENTS
Introduction................................................................................................................. 3
Part a: Case Study Analysis........................................................................................4
1.)................................................................................................................................ 4
2.)............................................................................................................................ 5
3.)............................................................................................................................ 6
Option 1............................................................................................................... 6
Option 2............................................................................................................... 6
Option 3............................................................................................................... 7
Option 4............................................................................................................... 7
Suggestion:..........................................................................................................8
4.)............................................................................................................................ 9
5.).......................................................................................................................... 12
PART B: JOURNAL ARTICLE CRITIQUE................................................................16
Conclusion...............................................................................................................22
references................................................................................................................ 23
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INTRODUCTION
The thorough analyzing of the case study states that there is a couple who after
getting retired from 30years of service in Road rail planned to start a business, they
decided to start a child care business in their home itself. The business needed $225
as the annual fees charge of the state and the insurance charge per year is $3840.
They planned to provide facilities to 6 children from 8 AM to 4 PM and for that, the
charges would be $800 per month. The provision of additional charges are also there
and for that, the parents have to pay an additional $15 per hour after the exceeding
of the time limit. The Nanna’s House is the name given to the child care center and
they would also provide a three-time meal for the children. Managerial accounting is
very much essential for couples in order to build the business.
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PART A: CASE STUDY ANALYSIS
1.)
A company incurs expenses in its manufacturing process, such that these expenses
form part of the cost structure of the product of the company. Such expenses are
termed as expenses can be further classified into different categories such as on the
basis of nature, functions, etc. Basically, expenses include any amount that is
incurred on conducting businesses and which is incurred in its operations. The case
study presents with different types of expenses such as:
Fixed Costs: These costs are static in nature and do not vary with the level of output.
Unlike variable costs, they vary with the time period. For example, if an organization
provides a machine for lease for production purposes. The company has to pay
$3000 per year whether the organization manufactures products or not but they have
to pay the lease amount and this called as the fixed cost.
Direct cost: The direct cost is related to the cost of production. The production of any
type of product, services, goods, etc. these all costs are associated with the
production. For example, Volkswagon is a motor vehicle manufacturing organization
which manufactures motor vehicles, a worker works for around 10hours a day for
building a car. The direct costs are then which are associated with the car are the
wages that are paid to the worker and also the cost of the parts that are used to build
the car.
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2.)
In order to purchase any product, there are certain costs that are needed to be
considered and there are few of them which are not relevant for making a decision
whether to buy the product or not. The information and the relevant points which are
used are only those which are able to induce any future impacts on the business and
the information which can be implemented in the business for benefits in the future...
In the given study, the following relevant information can be found:
• The information regarding the prices and the introduction and instructions are
provided for the purchasing of any product and these are the first points towards the
relevancy to the provided information.
• One of the very important information sources is the source of the revenue
generation, the organization calculates the income and the deduction amount. This
one of the most relevant and important information provided in the case study.
• Fixed cost is one of the very major information and relevant points provided in the
case study. The insurance cost, the license cost, etc. are the type costs which are
very important according to the case study and the organization is very much
dependent on the fixed cost. The business which the couples are sharing in that the
involvement of the fixed costs is very important. The license and the insurance costs
are very important for the settlement of the business. Non-cash expenses such as
depreciation also are the major component of fixed costs as the person will get tax
benefits on the deduction of such expenses.
• Variable costs are such costs which vary with the level of output. Such costs
depend on the level of output and not fixed like other fixed costs. Variable costs can
also be considered as direct expenses incurred in the manufacturing process and
hence directly affecting the cost structure of the company. In the given study, snacks
and meals expenses and supervision cost are of variable nature as they vary directly
with the number of children.
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• Another relevant aspect of the study is the opportunity cost incurred in the form of
choices made by choosing from different alternatives in the pursuit of the least costly
option that would result in the maximum profit. For calculating the laundry cost,
different alternatives were analyzed. In the study 4 options were given as
alternatives for calculating the laundry cost and the basis of that analysis, the least
costly method was chosen among the 4.
3.)
Several options are available for calculating the cost of laundry. These
alternatives/options need to be scrutinize in order to determine among following
which is the most feasible and cost effective method.
OPTION 1
Particulars
Amoun
t
Complete Laundry Cost per
month $52
Total Cost per year $624
In option 1, cost has been given directly which are to be suffered by Frank as laundry
cost.
OPTION 2
Particulars
Amoun
t
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Times in a week (round
trip) 2
Distance (in Miles) 3
Mileage ($/mile) $0.56
Weeks in a year 52
Total Cost per year
$174.7
2
The second option shall be costlier as Franks are considering laundry to a
Laundromat which is quite far from their location. An extra cost of travelling shall be
borne by them in delivering and receiving of clothes.
OPTION 3
Particulars
Amoun
t
Self-Washing $416
Supplies of Laundry $140
Total Cost per year $556
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Option 3 suggests the simpler method i.e. to hand wash clothes by themselves, and
hence they will need some laundry supplies and detergent.
OPTION 4
Option 4
Particulars
Amoun
t
Cost of Appliances $35
Additional Accessories $43.72
Total $78.72
Increase in Energy Costs
Washer $120
Dryer $145
Depreciation $9.84
Total Cost per year
$353.5
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The last option which is considered also suggests to wash clothes by themselves but
this method is costlier too as it suggests buying of a washer and dryer. An extra cost
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for electricity shall be borne by them also buying of additional accessories will be
much costlier.
SUGGESTION:
After analysing all the above options, it is derived that option no.2 is the most cost
effective and feasible. As per option 2 the total cost that shall be incurred is $174.72.
The reason why they should consider option 2 among all the 4 options is because it
is cheaper as it depends on the regularity with which apparels are sent to
Laundromat and it is also assumed that the vehicle shall give good mileage.
Note: As the actual costs of the appliance are not given in the question, it has been
assumed that the cost of mentioned appliances is $35.
4.)
For ease of calculation and expediency the data provided in question is accumulated
Data provided in question
Particulars Current
Scenario
Hiring
Supervisors
Charge per child per month $800 $800
Hours per day 8 8
OT per hour $15 $15
Snacks and meals per child per day $3.20 $3.20
No. of children 6 9
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Cost of renovations $79,500 $79,500
License fee $225 $225
Insurance $3,840 $3,840
Utility Cost per month $50 $50
Total Supervisors 0 1
Total Supervision Cost $0 $18,720
Calculation of gain that can be earned in numerous scenarios
Particulars Current
Scenario
Hiring
Supervisors
Service Receipts $57,600 $86,400
Less:
License fee $225 $225
Insurance $3,840 $3,840
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Utility Cost per month $50 $50
Depreciation on renovation $3,180 $3,180
Cost of laundry ( See Q3) $174.72 $174.72
Snacks and meals 7008 10512
Supervision Cost $0 $18,720
Total Costs $14,477.72 $36,701.72
Profit $43,122.28 $49,698.28
It has been assessed from the above calculations, a supervisor must be hired who
would be able to yield in 3 more children. By this profits are expected to increase to
$49,698.28 from $43,122,28. The extra cost which shall be incurred in recruiting a
supervisor can be overweighed by the revenue generated by yielding in 3 more kids.
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5.)
Data given in question
Particulars Current
Scenario
Hiring
Supervisors
Re-
locatio
n (14
Childre
n)
Re-
locatio
n (12
Childre
n)
Charge per child per month $800 $800 $800 $800
Hours per day 8 8 8 8
OT per hour $15 $15 $15 $15
Snacks and meals per child
per day $3.20 $3.20 $3.20 $3.20
No. of children 6 9 14 12
Cost of renovations $79,500 $79,500 $0 $0
License fee $225 $225 $225 $225
Insurance $3,840 $3,840 $5,000 $5,000
Utility Cost per month $50 $50 $125 $125
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