Detailed Managerial Accounting Analysis for Frank's Day Care Business

This report provides a detailed analysis of managerial accounting principles, using a case study of Frank's day care business. It begins by exploring different types of costs, including variable, fixed, and opportunity costs, and then differentiates between relevant and irrelevant information in purchasing decisions. The report then analyzes the costs associated with different laundry options, including outsourcing versus purchasing appliances, and provides calculations to support its recommendations. Further, the report evaluates the financial implications of hiring additional employees and enrolling more children, offering recommendations based on profitability calculations. Finally, the report explores the components of a management accounting system and its importance in effective decision-making, along with the contribution of management accounting in the innovation process, drawing lessons from case studies of Cannon and Apple.

MANAGERIAL
ACCOUNTING

Table of Contents
INTRODUCTION..........................................................................................................................3
PART A..........................................................................................................................................3
1. Different types of costs along with examples........................................................................3
2. What is relevant and irrelevant information related to purchasing decision of appliance.....4
3. The cost of laundering the clothes from different alternatives..............................................5
4. Decision regarding hiring additional employees....................................................................6
5. Calculation for making decision to enrol more children in day care ...................................7
PART B...........................................................................................................................................9
1. components of management accounting system and their importance in making decisions
effectively and efficiently..........................................................................................................9
2. Contribution of management accounting in the innovation process .................................11
3. Lesson learned from the article ..........................................................................................12
CONCLUSION.............................................................................................................................12
REFERENCES.............................................................................................................................13

INTRODUCTION
Management accounting is that branch of accounting which deals with the preparation of
managerial reports for the purpose of assisting decision-makers within an organisation. It is
concerned with preparing budgets, performing management of cost and asset. The reports
derived by the way of applying management accounting helps managers in forecasting that
eventually aids in improving the efficiency of the company (Smith and Driscoll, 2017). The
present project report will highlight different types of costs along with some examples from
Frank's business of child day care. The couple is engaged in business of day care of 6 children.
They are now stuck with the problem that whether they should hire additional employee, shall
they admit more children and how to get their laundry done.
It will cover what is relevant information for the business owners in relation to their
decision making regarding the purchase of appliances and what is irrelevant information. This
section of the report will also include calculations related to the purchase of washing machine,
employing of additional staff and how much children shall be kept Frank. Further, in other
section of the report, components of management accounting will be discussed in relation to the
case studies of Cannon and Apple. How managerial accounting contributes in the innovation
process and what are the things which can be learned by a management accountant from the
findings of the case studies.
PART A
1. Different types of costs along with examples
Number of costs exists in a business that are required to be incurred for operating a
business entity. Different types of business costs are described below:
 Variable costs: These are those costs whose level changes with the change in production
level. This means that as the production increases, the costs will also increase in the
same proportion. This change is however, constant (Manyaeva, Piskunov and Fomin,
2016).
Example : Meal cost per child which is $3.20 in the business of Frank can considered to
be a variable cost because as the number of child in day care will rise, the cost of meal will also
rise.

 Fixed cost : These are the costs which does not changes with the change in production
level. It remains constant no matter what the level of production is. Rent, taxes,
insurance are some fixed cost in a business (Holzhacker, Krishnan and Mahlendorf,
2015).
Example : Insurance cost $ 3840 is a fixed cost which the couple have to pay, no matter what
number of children they admit in their day care home. Opportunity costs : These are such costs which can be defined as the cost of foregoing
the advantage of next best alternative. It is one of the main in management accounting
which aids decision makers in better evaluation of different alternatives (Various Types
of Cost in Managerial Accounting, 2019).
Example : For Frank, the opportunity costs in their business would be the costs that it
have to forego for choosing a particular option for laundering the clothes. Like if the couple
selects the option of getting its laundering done from Red Oak for $52 per month, then they
would have to let go the benefit of laundering from another option which costs $ 57.16 per
month.
2. What is relevant and irrelevant information related to purchasing decision of appliance
Relevant information : An information is said to be relevant or material in a decision
making if it has the potential of affecting the mind set of decision makers. This implies that if
such material information is omitted or ignored, it could result into bad decision making for the
business (Bahrami, Yuan and Boeing 2015). In the study, information related to the purchase of
appliance that needs to be considered by the couple would be the cost of laundering from
different alternatives. It will closely evaluate which will be the most cost effective alternative by
comparing each of them. For example, if the couple chooses to launder their clothes from Red
Oak, then they will have to incur $50 per month in which there is no extra cost of supplies,
transport as compared to another alternative in which they can get their laundry done form
Launder mat. It would cost them $57.16 per month. Depreciation, increase in energy costs due
to buying of washing appliance are examples of relevant information which must be considered
by Douglas and Pamela Frank.
Irrelevant information : These are such information which does not make any material
difference in the decision making process if ignored or omitted. Also, it is advisable that

irrelevant information must not be consider by the decision maker as it could deviate decision
maker from key points in the decision making. Examples of irrelevant information from the
present case study would be cost of meal, insurance cost, cost of purchasing new house, license
fees etc.
3. The cost of laundering the clothes from different alternatives
The couple have three options from which they can choose to launder the clothes. The
cost of each alternative is different which is calculated below :
Laundering from Red Oak Laundry
Cost per month of laundering from this source is $52.
Laundering from Laundering-Mat
Particulars ($)
Laundering cost 34.64
transportation (conveyance) cost 14.55
Supplies expenses 11.72
Total cost of laundering from Launder Mat 60.86
Laundering the clothes by buying own washing appliance
Particulars ($)
Cost of dryer 380
Cost of washer 420
Delivery cost 35
Additive accessories 43.72
Purchase cost of appliance 878.5

Calculation related to cost per month which will have to be spend by couple for laundering
Particulars ($)
Energy cost of dryer 12.08
Energy cost of washer 10
Per month depreciation 9.15
Laundering per month cost 31.24
Interpretation : It can be observed from above calculations that laundering from
purchased appliance is the most cost effective. The cost calculated was $31.24 per month. This
is way lower than the other two options in which the cost of laundering from Red Oak and
Launder mat was $52 and $60.86 respectively. The couple will however, make a capital
expenditure at once but the per month cost would be less than the other two alternatives.
Therefore, it is advisable for the Douglas and Pamela that they should opt for the option
of buying the appliance instead of getting its laundering from outside sources.
4. Decision regarding hiring additional employees
The couple in order to decide whether to hire the new employees for the day care or not
can be identified by comparing with present case in which the new employees are not hired.
The below calculation is being considered in order to determine the profitability of the business
by considering new employees and by not considering the new employees.
calculation of
net earnings of
day care after
employing new
employee

particular amount amount
fee from day care 7200
less: cost to be incurred
license cost 18.75
cost of new license 18.75
employment cost 1559
cost of meal 864
insurance 320 2661.5
net income 4420
calculation of
present net income
of day care
particular amount amount
fee from day care 4800
less: cost to be incurred
license cost 18.75
cost of meal 576
insurance 320 914.75
net income 3885.25
On the basis of above calculation it can be identified that by considering the new
employees the expenses of the day care will increase as compared to the present day care
which shows that the cost incurred by hiring the new employees will be 2661 whereas on the
other hand the cost for present day care is 914. The firm with the help of hiring new employees
will be able to increase their net income as computed above because by hiring the new
employees the business will be able to increase their fee which in turn is more than that of the
present day care. So, it is recommended to the couple to hire the new employees for the business
become it will increase their profitability.

5. Calculation for making decision to enrol more children in day care
Net profit of day care when there are 9 children
particular
Amount
($)
Amount
($)
fee from day care 7200
less: cost to be incurred
license cost 18.75
New license 18.75
employment cost 4676.4
Meal cost 864
Insurance expense 320 5897.9
net income 1302.1
Net earnings of day care when there are 6 children
particular
Amount
($)
Amount
($)
fee from day care 4800
less: cost to be incurred
license cost 18.75
meal cost 576
expenses for insurance 320 914.75
net income 3885.25
Net earning of day care when there are 14 children
calculation of net
earnings of day
care by caring for
14 children
particular amount amount
fee from day care 11200
less: cost to be incurred

license cost 18.75
cost of new license 37.5
employment cost 7274.4
cost of meal 1344
utility cost 125
rent 650
insurance 416.6666666667 9866.31
net income 1333.68
On the basis of the above information which has been provided from the different
scenarios related to the different number of children for the day care. The net profit after the
enrollment of 9 children is just $ 1302.1 as compared to the situation when 14 children are
admitted when the profit is 1333.68. From both the situations, the net profit came out be less
than the current scenario in which the net income earned by the couple is 3885.25. Thus, it is
advisable to the couple that they should continue with the 6 children only as it is more profitable
for them.

PART B
1. components of management accounting system and their importance in making decisions
effectively and efficiently.
Management accounting is basically the process of analysing, collecting, evaluating,
planning and communicating the essential organisational data to the internal users as
communicated information helps them in their decision making by proper and efficient use of
the resource and information available to them.
Every company is focusing on effectively managing the resources by efficient use of its
components. The management accounting system consist of different components and which
component are highly utilising by the company is completely depends on the situation in which
organisation exists (Boučková, 2015). There are components which helps the companies in
making effective and efficient decisions. Both the companies Canon Inc. And Apple computer,
Inc. in their respective product development focusing on various components of management
accounting systems and are explained below:
Job costing system
it is the component which focuses on assigning and accumulation of the manufacturing
cots to each individual product which helps the managers of the company for keeping the track
record of expenses which are incurred on development and product of each individual unit or
output. This component of accounting helps the managers in enabling the reporting of their
profitability by tracking the cots ad revenue of each of job in order to find out that this particular
job is profitable to develop or not.
Price optimising systems
It is the component which s basically prefers to use the mathematical programs or tools
in order to compute that at different price levels hoe the product's demand change or varies and
then combining the data with the information of costs and the inventory level to ascertain the
process which will leads to improve the profits. it is basically use by both the companies in
order to ascertain that hoe customer will respond to their new product at different price levels
using different channels.
Cost accounting systems

This system is generally used by the Canon.Inc. And Apple computer, Inc to eliminate
the excess cost of their products in order to increase the probability of the business.
Cost accounting system is generally a framework which h helps in eliminating the costs of the
products for analysing the profitability, inventory valuation and controlling the costs so that they
can successful achieve their objectives and goals.
This is used to monitor and control the costs f the product so that they can satisfy the
needs and wants of the customers by offering them quality and innovative products and also
earning higher amount of profits which ultimately helps them in achieving their organisational
goal effectively (Bloomfield, 2015 ) .
Inventory management systems
This system is generally used by the companies in order to track their inventory through
supply chain .it covers everything starting from production of the goods to warehousing,
shipping and all the transfer and movements of the goods, this is the technology which company
uses and it is the combination of hardware and software technology and also the process which
monitor and maintain the stocks production. Canon.Inc. And Apple computer, Inc using the
system to track the goods and the inventory levels , orders of the goods, sales and the delivery
of goods. IT is also used in creating the work order, bill of the materials, and also the other
production related documents.
Hence, these all are considered to be the essential components of the management
accounting system which is generally used by the companies in order to successfully implement
ing their strategies regarding the launching of the new and innovative products and to increase
their profitability (Eker and Aytaç, 2017). This will help them ultimately in achieving their
desired goals effectively and efficiently, in addition this will lead to capturing the larger share of
the market .
For example- Apple computer in the development of their new launch Macintosh uses
the components of job costing and price optimization in order to ascertain that how much
product Wil be demanded by the customers and also what cost they incurred on development
and production of each product. Whereas Canon uses inventory management and costing system
to track the record of their mini copier inventories and to eliminate the excess cost which my

incurred by them through unnecessary use of the resources or not using the technology
optimally.
In the case study, There are various management accounting components considered
which are related to the cosy accounting system. At the planning stage for the development of
new product it is required to measure the cost associated with the development to new product.
IN Canon Inc, The management accounting system which is used is cost accounting as it has
consider the cost effectiveness and reliability for the development of new product. Moreover,
The Apple Computers, is also focusing on the making the product cost effective by preparing
the budget in order to control the cost.
2. Contribution of management accounting in the innovation process
Innovation is the way through which the firm is able to make the different product or
technology which is not available in the market. With the help of innovation, the firm is able to
increase their customers base and also the profitability of the business. Management accounting
assist in the innovation process because it helps in identifying the cost of the products and also
assist in making the effective decision regarding the product development to make the product
cost effective. The firm by using the principles of management accounting is able to make
effective decision regarding the innovation process which assist in reducing the expenses and
making the product at the lower cost.
The huge expenses incurred by the firm consist of market research, cost of providing
training to the employees for the development of new product. management accountants are
required to prepare the budget for the development of new products on the basis of which the
firm is able to identify the net income and expenses associated with the development of new
product (Banerjee, Tarazi and Akre, 2018). For example, Steve Job, the CEO of Apple
computers have used the updated technology for the development of existing technology in
which management accounting has provided support by allocating the large amounts of its
resources on product manufacturing. Whereas on the other hand with regards to the case of
Canon Inc, management accounting assisted in designing and allocation of the cost of product.
With the help of management accounting the firm was able to make the product cost effective
which is beneficial for increasing the profitability of the firm. The firm decided to dispose the
drum in order to reduce the high maintenance cost.