Managerial Accounting: Case Study on Cost and Decision Analysis

This assignment delves into managerial accounting principles through a case study analysis. Part 1 focuses on identifying different types of costs—fixed, variable, and opportunity costs—and their relevance in decision-making, particularly regarding the purchase of appliances and hiring additional employees for a daycare. It examines cost-related decisions, such as laundering clothes and determining the optimal number of children to accept. Part 2 explores the components of a management accounting system, its contribution to the innovation process, and lessons learned from case studies of Canon and Apple. The assignment highlights the role of managerial accounting in analyzing costs, making informed decisions, and fostering innovation within organizations, providing insights into real-world business scenarios.

MANAGERIAL
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
PART 1 ...........................................................................................................................................3
1. Types of cost in case ..............................................................................................................3
2. Information relevant to make decision regarding purchase of appliances..............................3
3. Cost to launder clothes............................................................................................................4
4. Hiring of additional employee...............................................................................................5
5. Number of children should be accepted in the day care ........................................................6
PART 2............................................................................................................................................8
Components of the management accounting system..................................................................8
2. Contribution of management accounting in innovation process............................................9
3. Lessons learned from article that will be useful for management accountants....................10
CONCLUSION .............................................................................................................................10
REFERENCES..............................................................................................................................12

INTRODUCTION
Managerial accounting is related to the internal concerns which consider the matters of
the firm regarding the cost and identify , measure , analyse and interpret the information
regarding the organisation activities to the managers in order to achieve the organisation goals.
In this assignment, there are two part one is concerned with the case on the basis of which the
answers are required to made on the question given and the second part consist of analysis of
the article related to Canon and Apple computers. This assignment will provide understanding
about the different types of cost associated with managerial accounting. Moreover, it will
provide information regarding the decision which are being made on the basis of analysis in the
managerial accounting.
PART 1
1. Types of cost discussed in case
There are three types of cost which consist of Fixed cost , Variable cost and Opportunity cost.
 Fixed cost : It is the cost which does not change with the change in the number of goods
and services. The cost which is fixed over the period is the known as fixed cost. for
example, rent, insurance etc (What are the types of costs in cost accounting, 2019). The
example from the case study which are related to the fixed cost consist of License which
is $225 annually , Insurance is f $3,840 annually etc.
 Variable cost : It is the cost which changes with the change in level of production and
thus it is not fixed for a period. The variable cost increases with the increase in
production and decreases with the decrease in production (Kaplan and Atkinson, 2015).
for example, In the case there are variable cost which consist of Fees that is $800 per
month for per child , cost of meal and snack $3.20 per child per day, utility cost y $50
each month etc.
 Opportunity Cost : It is the benefit provided when one decision is being made over
another. It is the coast of the foregone alternative due to choosing the another over that
source. For example, the alternative for the Franker is to purchase washer and dryer in
which washer is $420 and dryer is $380.

2. Information required for decision making related to purchase of appliances.
It is important to determine the relevant information for making decision regarding the
purchase of appliance because it will assist in making effective and efficient decision for the
purchase of appliances.
 Relevant information : It is the information which will help the owner in making an
effective decision on the basis of that information they can decide which appliance they
have to purchase on the basis of the relevant information regarding the cost (Brewer,
Garrison and Noreen, 2015). for example , In the case the relevant information which
will help in making effective decision consist of cost of both washer and dryer, Cost of
installation, Total cost of appliances, energy cost.
 Irrelevant information : It is the information which will not assist in making the
decision regarding the purchase of appliance and thus should not be considered while
making the decision regarding purchase of appliances (Appelbaum and et.al., 2017). The
irrelevant information regarding the purchase of appliances consist of utility cost,
number of child enrolled in care, license cost, insurance cost for the care etc. are
information which are not assisting in taking decision related to purchase of appliances.
3. Cost to launder the clothes
As per the information provided by case study regarding laundering of clothes by day
care following different options are there:

The cost of laundering the clothes consist of three different option one is launder the
clothes through the Red oak company. If the couple chooses the option three which is purchase
of appliances through that have the lower cost than the other option ans thus it will be beneficial
for them (Weygandt and et.al., 2018). The above information have provided understanding
about total cost per month which is being calculated on the basis of per month depreciation,
dryer energy cost and washer energy cost.
4. Hiring of additional employee
The Franks have the waiting list for the day care and in order to identify the requirement
of the additional employees as it will assist in making the effective and efficient decision
regarding the hiring of new employees in the day care on the basis of the net earning which will
be provided after hiring the new employees by comparing the net earning with that of the present
net income of day care (Butler and Ghosh, 2015). The following calculation is being done for
the net earning after hiring new employees which is being compared with that of the present net
earning of the day care.

From the above table it can be interpreted that the net earning of the day care after
employing new employees is 4538.5 whereas the present net income of the day care without
hiring new employees is 3885.25 which is lower. Also, business will increase profitability by
hiring new employees in the day care as fees received by day care will be increased (Nitzl and
Chin, 2017). It is recommanded to the couple that they should hire the additional employees in
the care because it will increase their net earning which is profitable for the business.

5. Number of children accepted in the day care

From the above calculation it is identified that with the increase in the number of
children there have been increase in the expenses for the day care but there have been more
increase in the net earning of the day care which is profitable for the business (Lin, Yang and
Wang, 2018). The net income of the day care is being highest when there are 14 children as it
shows the couple earns 4768.0833333333 as net income whereas when there are 9 children than
the care earns the net income equal to 4538.5. Also when the Couple enrolled 6 children than the
net earnings of the day care were 3885.25.
It shows that with the increase in the number of children in the day care the net income
for the couple is also being increases and thus it is recommended to the couple that they should
move to the rented place because after using the rented place and hiring the 14 children in that
the net income of the couple will be more as compared to enrolling only 6 or 9 children in their
home. So, from the three sceneries it is recommended to the couple to choose the third one in
which the 14 children are being enrolled in the rented care.

PART 2
Components of the management accounting system
Management accounting systems assist in identifying the different aspects related to the
business. It consist of job costing, inventory management etc. the job costing is related to the
allocation of the cost to the specific job it consist of the components of direct material, labour
and overhead expenses.
Management accounting is being concerned with the preparation of the budget on the basis of
which the firm is able to make the decision for the organisation in order to increase the
profitability of the firm.
On the basis of present case study of Apple computers and Canon Inc, The firms applied
the provision of the management accounting which include the appropriate information for the
decision making, planning, cost control and performance evaluation.
For example, Canon Inc was facing managerial crisis because the top management was
lacking in coherence and direction. The corporate structure of the firm does to allow to deal
with the diversification (Phillips, 2019). The canon when entering into the business of Mini-
cooper because they wanted to diversify the product line in order to increase their profitability
and thus they entered into this business which was different from the camera industry. The
decision of the firm was based on the management accounting principles.
At the planning stage, The management of the company were involved in making the
decision regarding the process of the Manufacturing of mini cooper. They made planning of the
design , cost and reliability of the product etc. the problems which was faced by the company
was to face the inverse relationship between reliability and cost. It means when reliability
improve the cost of production also increases but when cost were reduce the service requirement
were increased (Phillips, 2019). At the planning stage the committee was formed in which the
members from different department were their in order to determine the cost and reliability.
management accounting helps the company in identifying the effective process for the Mini
cooper which consist of the features such as cost effectiveness, low maintenance cost etc. With
the help of budget the company was able to manage and control, the cost which is most
important concept in the management accounting.
As per the case of Apple computers, management accounting provided assistance to the
company when the firm was planning to launch it product known as Macintosh. The cost of the

product was low due the help of management accounting techniques which were adopted by the
firm which help in providing the personal computers at low cost. The management accounting
system which are being used by companies is cost accounting system in which the firm focused
on determining and controlling the [cost of the new product.
On the contrary, the management accounting is not always help in managing effective
decision for the firm because they are based on intuitive decision making and there may be
communication of the wrong information which may affect the decision making of the
management (Caplan, 2016). Management accountants are required to make the effective
allocation for the cost on the basis of which the firm is able to make the effective decision
regarding organisation activities.
2. Contribution of management accounting in innovation process
The innovation is the way of changing process or creating more effective processes.
Innovation assist in increasing the customer base of the firm as well as it assist in increasing the
profitability of the organisation. The companies in order to retain the customers in business
due to high high competition availing in the market and thus the firm require to provide
something new in the market which in turn will increase the profitability of the firm (Trout,
2019). Management accounting assist in contribution of the innovation process because with the
help of principles of management accounting the firm is able to make the effective decision
regarding the innovation process such as allocation of the cost for the new product in order to
increase the profit margin of the organisation. The firm for the development of the product is
required to incur huge expenses on the research and development in order to identify the demand
of the product in the market on the basis of which the decision regarding the development of new
product is being taken. Moreover the huge expenses which are incurred by the firm consist of
feasibility studies, designing cost, cost of training employees etc. Management accountants are
require to prepare the budget on the basis of which they can make decision regarding the
profitability of the firm on the basis of making comparison between the budgeted figures with
that of actual figures.
For example , The CEO of Apple Inc., Steve jobs allocated the large amount of its
resources on product manufacturing because the viability of the project was good. The decision
made by the firm was effective and thus the product launch was also successful. The role of

management accounting in the new product development is to determine the cost and make the
product cost effective in order to increase the profitability of the firm.
As per the case of canon Inc , management accounting played an important role in
designing and allocation of the cost to the product. It assisted in designing the mini cooper by
using the cost control in order to make the product cost effective and the product was being
evaluated through the use of tools and techniques of management accounting by using the cost
accounting the firm is able to measure its cost through the use of preparing the budget which
provide information regarding the profitability of the firm. . Canon made the innovation through
the development of new product whereas apple updated the existing technology as form of
innovation. for example, In Apple, management accounting assisted in the innovation process by
estimating the cost of the product. The management at Apple was uncertain towards the Mac
project initially. The Mac was developed in isolation.
3. Lessons learned from article that will be useful for management accountants
The article has provided information regarding the two companies which consisted of
Canon Inc and apple computers. The CEO of Apple computers , Steve jobs have a clear
knowledge and understanding of the goals and objective and possess the good leadership
qualities which assist in increasing the profitability of the firm as well as achieving their goals
and objectives in the effective and efficient manner. The management accountant can learn
from this that it should be creative and innovative while performing their job role which assist in
determining the alternative solutions for the problems (Millo, Barman and Hall, 2016).
Moreover, the management accountants should stay away from personal judgement and biasses
while preparing the reports in order to help the management in making effective decision for the
organisation.
Management accountants can also learn from the Canon Inc, As the firm is involved in
making the decision by considering the opinion of the all the members of the organisation which
means the firm consider the opinions of the employees and involve them in decision making in
order to make the effective and efficient decision for the organisation. The company focus on
creating and maintaining a clear and defined structure. for example, Canon while making
decision for the mini- cooper in order to make its cost effective and reliable involved people
from different departments (Towards a new theory of innovation management: A case study

comparing Canon, Inc. and Apple Computer, Inc, 2018). It was decided to manufacture the low
price mini- cooper by disposing the drum which assist in reducing the high maintenance of the
Min- cooper machine. With the help of having a good culture in the organisation in which the
firm, is able to involve the employee in making decision also helps in motivating the employees.
So, the management accountant are required to have good communication skills through which
they are able to communicate with the members of the organisation so that they are able to
produce accurate and reliable reports on the basis of which the firm is able to make decision.
CONCLUSION
From the above assignment it has been concluded that there are two part first part is
related to the case study on the basis of which the answers are being provided to the questions. It
has provided information regarding the different types of cost which consist of fixed, variable
and opportunity cost. Moreover, it has provided information regarding the relevant and
irrelevant information for decision making regarding the purchase of appliance which has
provided information that the relevant information is the one which is related to the subject and
helps in making the effective decision. Furthermore, The second part is on the basis of the case
study of canon and Apple computers which assisted in identifying the role of management
accountants in the innovation process which is allocation of cost, determining the ways to control
the cost product.