Holmes Institute HI5017 Managerial Accounting Case Studies Report

This report presents a comprehensive analysis of a managerial accounting case study, focusing on cost concepts and their application in a service-based business. The assignment delves into the identification and classification of various cost types, including fixed, variable, and semi-variable costs, within the context of a childcare facility. It evaluates relevant and irrelevant information for decision-making, such as purchasing appliances. The report also includes a detailed cost-benefit analysis for hiring additional employees and evaluating the feasibility of renting new spaces. Furthermore, the report incorporates calculations for net profit margins under different scenarios, offering recommendations based on financial analysis. The document also explores components of managerial accounting and evaluates their relevance in decision-making and the contribution of management accounting in the process of innovation. Finally, the report includes findings from a relevant article and its usefulness to management accountants in Australian companies.

Running head: MANAGERIAL ACCOUNTING
Managerial accounting
Name of the student
Name of the university
Student ID
Author note

MANAGERIAL ACCOUNTING
Table of Contents
Part A:........................................................................................................................................3
Answer to requirement 1:.......................................................................................................3
Answer to requirement 2:.......................................................................................................4
Answer to requirement 3:.......................................................................................................5
Answer to requirement 4:.......................................................................................................6
Answer to requirement 5:.......................................................................................................7
Part B:......................................................................................................................................10
Answer to requirement 1:.....................................................................................................10
Identifying components of managerial accounting of the companies and evaluating
their relevance in the decision making process:...............................................................10
Answer to requirement 2:.....................................................................................................12
Evaluating the contribution of management accounting in the process of innovation:
..................................................................................................................................................12
Answer to requirement 3:.....................................................................................................13
Findings from the article and its usefulness to the management accountants to the
Australian companies:..........................................................................................................13
References and Bibliography list:.......................................................................................17

MANAGERIAL ACCOUNTING
Part A:
Answer to requirement 1:
The case study talks about running of child care business and different types
of cost that is involved in running the child care facility. The components and the
concepts of cost forms an integral part of accounting system as it determines the
feasibility of carrying out business activities. In general, there are three types of cost
that is incurred by business activities such as fixed cost, variable cost and semi
variable cost. Fixed costs are the fixed expenses that are incurred by business
regardless of the services provided and total number of output produced (Joshi & Li,
2016). It can be therefore said such costs are inured even when the business
product level is zero and such costs are incurred on monthly or daily basis. From the
given case study, fixed expenses are the cost of insurance and the license fee that
are being paid to state. The state charges license fee of $ 225 for running the child
care facility for which the permit is limited to provide service to maximum of six
children. In addition to this, they are also required to pay insurance that costs them
amount of $ 3840 on annual basis.
Variable costs on other hand are the costs that vary in proportion to the level
of output produced and services provided. This means the cost vary with change in
the level of output produced that is it increases or decreases with expanding or
falling production. Hence, business is not required to incur any variable cost when
the level of output produced is zero. Some of the variable costs are the salaries paid
to employees and cost of meal and snacks per day per children. The cost of meal

MANAGERIAL ACCOUNTING
and snacks for children per day is $ 3.20 and the salary paid to employee is $ 9 per
hour which would increase with increase in number of children that are provided
service.
Semi variable costs are the costs that involve the components of both fixed
and variable cost. For a given level of production, the cost will remain fixed and after
the production level exceeds a certain level, the cost will also start increasing
proportionately. Some of the utility costs that are incurred by business are utility cost
that would increase. In addition to this, energy cost for running the washer and dryer
increases every year by $ 120 and $ 145 respectively. The license fee paid by
couple is for providing service to maximum of six children. If the couple intends to
provide services to additional number of children, the license fees paid would also
increase.
Answer to requirement 2:
The couple is required to make decision about purchasing of appliances for
laundering of the soiled clothes of children. They are thinking of purchasing the
appliances that would help them in laundering the clothes. Hence, some of the
relevant information that is required to be considered by the couple for purchasing
the appliances is cost of washer and cost of dryer. Cost of installing the machine is
information that should be considered by the couple along with the appliance
delivery charges. In addition to this, couple is also required account for operational
expenses that would be incurred by the couple. For determining the total operating
expenses, couple is required to collect information about the depreciation, energy
cost of washer and dryer. The information that is not relevant for the couple when

MANAGERIAL ACCOUNTING
deciding the purchase of appliances is the cost of old appliances, license fees and
insurance cost (Robson & Bottausci, 2018).
Answer to requirement 3:
For laundering the clothes, couple is required to evaluate the benefits and
costs provided by each of the options. The first option available to the customer is to
seek rental service from dry cleaning and red oak laundry. There is no initial cost of
investment in this option and the total operating expenses for seeking renting service
is computed at $ 52 which the makes the total outflow of cash of amount $ 624. The
second option available to the customer is opt for Laundromat services for which the
operating expenses are incurred for laundry supplies, laundry charges and travelling
charges. Total amount of operating expenses on monthly basis comes to $ 60.86
and the total amount of annual expenses is recorded at $ 730.27. The last option is
to purchase their own dryer and washer for washing the clothes for which the couple
is required to incur initial cost and operating expenses. The total amount of initial
investment includes the components such as cost of washer and dryer, delivery
charges of appliances and installation cost at the value of $ 878.72. In addition to
this, the operating expenses include energy cost for washer and dryer along with
depreciation at amount of $ 42.90. After taking into account all the components, the
total expenses of purchasing the new appliances would be $ 1384.41. From the
analysis of computed figures, it is observed that the total outflow of cash is highest
when the couple opts to purchase the washer and dryer compared to renting service
and Laundromat services. However, one point that should be taken into account is
the annual expense which is lowest when the couple is purchasing the appliances

MANAGERIAL ACCOUNTING
(Botes & Sharma, 2017). Therefore, it would be feasible for the couple to seek rental
service from dry cleaning service provider.
Option 1 Option 2 Option 3
Initial Cost:
Cost of Washer $420.00
Cost of Dryer $380.00
Installation Cost $43.72
Delivery Charges of Appliances $35.00
Total Initial Investment $878.72
Operating Expenses:
Monthly Laundering Cost of Agency $52.00
Monthly Travelling Charges to Laundromat $14.55
Monthly Laudering Charges in Laundromat $34.64
Monthly Laundry Supplies for Landromat $11.67 $11.67
Monthly Depreciation of Appliances $9.15
Additional Enegry cost of Washer $10.00
Additional Enegry cost of Dryer $12.08
Total Monthly Operating Expenses $52.00 $60.86 $42.90
Annual Expenses $624.00 $730.27 $514.84
Less: Depreciation $9.15
Total Cash Out Flow $624.00 $730.27 $1,384.41
Answer to requirement 4:
This section accounts for the benefits provided by hiring additional employee
and the employee can be hired for $ 9 per hour. It can be seen that with hiring an
additional employee, the facility would be able to serve a total of 9 children because
of additional three children being served. The detailed calculation of the cost and
benefits analysis by hiring additional employees is shown in the table below.
Amount

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Additional Nos. of Children 3
Revenue per Child $800.00
Additional Revenue per
Month
$2,400.0
0
Nos. of employee 1
Labor Hour per week 40
Labor Charges per hour $9.00
Additional Labor Charges
per month
$1,558.8
0
Additional Profit per month $841.20
From the above table, the additional revenue that would be generated by
hiring additional labor is $ 2400. The total labor charges are at $ 155.80 and
therefore the additional benefits provided by hiring one additional employee is $
841.20. It would be recommended for the business to hire additional employee as
the revenue generated is more than the charges of labor. One point is to consider
the total cost for license fee as this would increase when the number of children will
increase by hiring additional labor (Hopper & Bui, 2016).
Answer to requirement 5:
To,
Douglas and Pamela Frank
Ovillas
Texas
Date: 29th May, 2019
Subject: Evaluating feasibility analysis of renting new space and facility in existing
space

MANAGERIAL ACCOUNTING
Dear Sir/Madam,
The letter I am writing you is to advice on the spacing options whether the
facility should be continued on the existing space and renting of space. The
information provided from the case study is that renting of new space would be able
to provide a maximum of 14 children. In addition to this, I need to point out the costs
to couple for renting space such as utilities cost and space cost of $ 125 per month
and $ 650 respectively.
The table below provides the detailed calculations of net profit margin
generated and the expenses incurred under the two options available to couple.
Current
Accommodation
New
Accommodation
New
Accommodation
New
Accommodatio
n
New
Accommodation
New
Accommodatio
n
New
Accommodation
New
Accommodation
New
Accommodatio
n
New
Accommodatio
n
Nos. of Children 6 6 7 8 9 10 11 12 13 14
Revenue per Child per month $800.00 $800.00 $800.00 $800.00 $800.00 $800.00 $800.00 $800.00 $800.00 $800.00
Cost of Meals and Snacks per child p.m. $96.99 $96.99 $96.99 $96.99 $96.99 $96.99 $96.99 $96.99 $96.99 $96.99
Nos. of Employees Required 0 0 1 1 1 2 2 2 3 3
Salary per employee p.m. $1,558.80 $1,558.80 $1,558.80 $1,558.80 $1,558.80 $1,558.80 $1,558.80 $1,558.80 $1,558.80 $1,558.80
Total Revenue p.m. $4,800.00 $4,800.00 $5,600.00 $6,400.00 $7,200.00 $8,000.00 $8,800.00 $9,600.00 $10,400.00 $11,200.00
Total Cost of Meal & Snacks ($581.95) ($581.95) ($678.94) ($775.94) ($872.93) ($969.92) ($1,066.91) ($1,163.90) ($1,260.90) ($1,357.89)
License Fees per month ($18.75) ($18.75) ($18.75) ($18.75) ($18.75) ($18.75) ($18.75) ($18.75) ($18.75) ($18.75)
Insurance p.m. ($320.00) ($416.67) ($416.67) ($416.67) ($416.67) ($416.67) ($416.67) ($416.67) ($416.67) ($416.67)
Utility Cost p.m. ($50.00) ($125.00) ($125.00) ($125.00) ($125.00) ($125.00) ($125.00) ($125.00) ($125.00) ($125.00)
Depreciation of Building p.m. ($265.00)
Rent p.m. ($650.00) ($650.00) ($650.00) ($650.00) ($650.00) ($650.00) ($650.00) ($650.00) ($650.00)
Salary of Employee $0.00 $0.00 ($1,558.80) ($1,558.80) ($1,558.80) ($3,117.60) ($3,117.60) ($3,117.60) ($4,676.40) ($4,676.40)
Total Expenses ($1,235.70) ($1,792.37) ($3,448.16) ($3,545.15) ($3,642.14) ($5,297.94) ($5,394.93) ($5,491.92) ($7,147.71) ($7,244.70)
Net Profit per month $3,564.30 $3,007.63 $2,151.84 $2,854.85 $3,557.86 $2,702.06 $3,405.07 $4,108.08 $3,252.29 $3,955.30
Net Profit Margin 74.26% 62.66% 38.43% 44.61% 49.41% 33.78% 38.69% 42.79% 31.27% 35.32%
I have computed net profit margin considering the existing accommodation
and new accommodation. Under the existing facility, the total expenses for running
the business are $ 1235.70. The net profit margin generated by business is 74.26%.
Now, when the couple considers the option of renting the space, it is seen that a
maximum of 14 children can be provided service. With increase in number of

MANAGERIAL ACCOUNTING
children taken care of, it is observable that the total expense for the couple is
increasing continuously. This increase in total expenses is attributable to increase in
total cost of meal and snacks and increase in salary paid to employees.
Furthermore, the net profit margin is declining with increase in additional number of
children being provided service. Therefore, from the analysis of the figures, it is
inferred that it would be viable to continue running the facility in the existing space
that is they should run the business in their home. Since, it is deduced from the
analysis that the couple should run the facility at home and under existing facility, a
maximum of 6 children can be provided service (Dierynck & Labro, 2018). Thus,
from the detailed evaluation of figure, it is said that couple should serve 6 children.
Under current accommodation, couple is not required to hire additional employee.
I hope the calculations provided by me regarding the option to rent space and
running the existing facility at home would address the queries and assist you in the
decision making process.
Thanking You,
Yours sincerely
Name
[Accountant]

MANAGERIAL ACCOUNTING
Part B:
Answer to requirement 1:
Identifying components of managerial accounting of the companies and
evaluating their relevance in the decision making process:
Management accounting can be defined as the procedure by which the
financial data such as costs are analyzed and the same is communicated to the
managers for undertaking the decisions. Basically, there are three components of
management accounting that include planning, decision making and controlling.
Controlling refers to evaluating the outcome by determining the factor such as cost
and measurement processes are within inside and outside the range. Strategy
development for enhancing the process of decision making also forms an important
components along with the planning that happens at all the level such as the plan to
maximize the profits of organization (Quattrone, 2016).
The journal article titled “Toward a new theory of innovation management: A
case study comparing Canon Inc and Apple Computer Inc” examines the
incorporation of the components of the management accounting in the product
development process at different levels. From the given article, it is observed that
both the organizations that is Apple and Canon have performed the application of the
components of management accounting in the development of Macintosh computers
and Mini copier respectively. The case of these two companies reflects upon the

MANAGERIAL ACCOUNTING
dynamics of the process of information creation and the lessons it generated for the
management.
The development of mini copier was done by reconceptualizing the entire
market of plain paper copier and for the actualization of the mini copier; the
organization formed a feasibility study team. This feasibility team comprised of
personnel from different departments such as production, technical department,
research and development, product design and marketing personnel. Cost and
reliability was the two factors that were required to be fundamentally managed by the
team and they intended to resolve the contradiction between these two facts. For
addressing the issue, a change in the concept was made by engaging the team in
heated arguments and the new concept emerged that would make copier
maintenance free (Gow et al., 2016).
Some of the management accounting components such as planning and
decision-making was also incorporated in the development of Macintosh computers
by Apple Inc. For the purpose of producing the product at lower cost, a Macintosh
group was formed that would examine the feasibility of developing an extremely low
cost computer for the people. Creation of the team resulted in emergence of new
ideas and features due to the constant and intense interaction among the team
members (Makrygiannakis & Jack, 2016). It was found that the manufacturing
managers in the team formed an integral part of the project team of development of
Macintosh.
Therefore, from the analysis of the given case of Apple and Canon, it is
inferred that the creation of team with personnel from different departments resulted

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in creating new ideas and features that contributed to the development of product by
way of innovation.
Answer to requirement 2:
Evaluating the contribution of management accounting in the process of
innovation:
The system of management accounting within organizations and its
associated components contributes to the process of innovation in the development
of products. In the current paper, it is argued that information can be regarded as the
process of creating information which helps in concretizing of the products that helps
in meeting the changing demand of people. Innovation in an organization can
emerge by breaking and challenging the staid and bureaucratic structures. The
process of innovation can be well understood when personnel working in
organization are conceptualized as creator of information rather than information
processor (Messner, 2016). The innovation in an organization has become a way
forward with the development of the techniques and concept of management
accounting as the incorporation of the techniques contributes to the development of
product in terms of the products uniqueness, technological competencies and
competitive pressures. The traditional method of management accounting that
includes the command culture and control would be eliminated by the freedom and
flexibility required in the innovation process (Trantopoulos et al., 2017).