HI5017: Managerial Accounting Assignment on Cost Concepts and Analysis

This managerial accounting assignment presents a detailed analysis of cost concepts, decision-making processes, and the role of management accounting in innovation. Part A focuses on a childcare business, examining fixed, variable, and semi-variable costs, relevant versus irrelevant information for purchasing decisions, and a cost-benefit analysis of different laundering options and hiring additional employees. A letter to a business owner is included, offering advice on whether to rent space or use their existing home for childcare. Part B explores the components of a management accounting system using case studies of Apple Inc. and Canon Inc., emphasizing the importance of innovation and how managerial accounting supports strategic decision-making. The assignment also includes a discussion of lessons learned from an article on innovation management and its implications for management accountants, providing a comprehensive overview of managerial accounting principles and their practical application.

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:........................................................................................................................................2
Answer to requirement 1:.......................................................................................................2
Answer to requirement 2:.......................................................................................................3
Answer to requirement 3:.......................................................................................................3
Answer to requirement 4:.......................................................................................................5
Answer to requirement 5:.......................................................................................................6
Part B:........................................................................................................................................8
Answer to requirement 1:.......................................................................................................8
Identifying the management accounting system components using the examples
from the case study:................................................................................................................8
Answer to requirement 2:.....................................................................................................11
Contribution of management accounting to innovation process:...................................11
Answer to requirement 3:.....................................................................................................12
Lessons learned from the article and its importance to management accountants:. .12
References and Bibliography list:.......................................................................................14

MANAGERIAL ACCOUNTING
Part A:
Answer to requirement 1:
The case study presented here is about the business of child care that is
owned by a couple who uses their own home for providing services. The costs
involved for running the child care business composed of fixed cost, variable cost
and semi variable costs. Fixed costs are the cost that is incurred irrespective of the
level of production or the service provided and hence it remains fixed. These are the
fixed expenses which the business are required to meet to continue running the
business (Ionescu 2017). Some of the fixed costs that are incurred by the child care
business comprise of insurance cost and the license fee paid by the couple to state.
The couple is required to pay a license fee to take care of maximum six child is $
225 and annual cost incurred for insurance of amount $ 3480 that is charged
annually. The fee paid for license is fixed when maximum of six children are served
and this would increase when there is an increment in the total number of children
that are taken care.
Variable costs are the costs that vary with the variation in level of output and
services provided. There will be change in the variable cost with the increase or
decrease in the service provided or output produced. The child care business has
some variable cost such as total salary payable to employees and utility cost for
running the business (Butler and Ghosh 2015). Therefore, an increase in number of
children taken care would increase the variable cost incurred by child care business.
Semi variable cost are the costs that remains fixed for a particular time period
and thereby it changes with change in level of services provided ( Lawson et al.

MANAGERIAL ACCOUNTING
2015). Therefore it composed of both fixed and variable costs. The child care
business also incurs some semi variable cost such as cost of snack and meal per
day at the amount of $ 3.20. Such cost also includes cost of energy for running dryer
and washer that would increase by $ 145 and $ 120 per year. Hence, the case study
presents three different types of costs.
Answer to requirement 2:
The information that forms the basis of decision to purchase the appliances is
to consider different types of cost that would be required to incur when purchasing
the appliances. Such cost includes the initial investment that is required to be made
by the couple which comprise of cost of installation, cost of dryer and washer and
delivery charges. In addition to this, it is also required to account for the operating
expenses such as travelling charge, laundering charge and cost for supplying the
laundry and energy cost for running the dryer and washer. On other hand, the
information that is not relevant to the decision of purchasing the appliances is the
cost of old appliances and the payment of annual fees to the state (Apostolou et al.
2018. Therefore, the relevant information for purchasing the appliances is associated
with the cost of running dryer and washer along with the depreciation factor which
should also be accounted for.
Answer to requirement 3:
For laundering the clothes, couple has three options and the option incurring
the minimal outflow of cost and annual expenses would be the feasible option for
laundering the clothes. The first option available to the couple is the rental service
from dry cleaning and laundry service provider. The total cost outflow under this
option is $ 624 and the total expense incorporate only operating expense and there

MANAGERIAL ACCOUNTING
is no initial investment made to be done by the couple. Now, looking at second
option opting for Laundromat service for which the total annual expenses that is
incurred is $ 730.27. This annual expense comprised of operating expenses of
travelling charge, laundry supplies and laundering charges. Under the third option,
the couple has the option of purchasing dryer and washer for which the total amount
of initial investment is to be made of $ 878.72. The additional expenses is incurred is
for operating expense include depreciation charge, laundry supplies and energy cost
for running dryer and washer. The total monthly operating expense that is incurred
when option for purchasing the appliance is chosen is $ 42.90. In addition to this, the
total annual expense is computed at $ 514.84 with the total outflow of cash at $
1384.41 Therefore from the analysis of figures under all three options, it can be
concluded that it would be feasible for the couple to choose option one because
under this option, the couple has the lowest outflow of cash. The option of
purchasing the appliances should not be chosen because it has the maximum
annual expenses that have to be incurred by the couple (Hueske et al. 2015).
Option
1
Option
2 Option 3
Initial Cost:
Washer cost $420.00
Dryer cost $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 Laundering Charges in
Laundromat $34.64
Monthly Laundry Supplies for
Laundromat $11.67 $11.67

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Monthly Depreciation of
Appliances $9.15
Additional Energy cost of Washer $10.00
Additional Energy cost of Dryer $12.08
Total Monthly Operating
Expenses $52.00 $60.86 $42.90
Annual Expenses
$624.0
0
$730.2
7 $514.84
Less: Depreciation $9.15
Total Cash Out Flow
$624.0
0
$730.2
7
$1,384.4
1
Answer to requirement 4:
Under this section, the cost and benefit analysis to the business by hiring
additional employees is presented. The couple can hire one additional employee at
the cost of $ 9 per hour and with the additional employee, the couple can offer
services to three additional children. For analyzing the benefits from hiring one
additional employee, it is required to compute the additional charges for hiring labor
per month and the additional revenue generated by hiring additional employee. The
computation of total labor charges is done by accounting for labor charges per week
and labor hour per week and the total labor charges comes to $ 1558.80. Total
amount of revenue generated per month by hiring additional employee comes to $
2400. Therefore, the profits can be computed by subtracting the cost incurred from
the revenue generated. It can be inferred from the figure that the revenue generated
per month is more than the cost incurred and therefore the additional profit comes to
$ 841.20. Therefore, from the analysis of figures, it can be said that the couple
should hire additional employee as it has a positive impact on the generation of
revenue. One important fact that should be taken into consideration is the license
fees paid to the state because in the current scenario, the license fees is paid for

MANAGERIAL ACCOUNTING
taking care of six children and with the additional labor hired, the business can
render service to three additional children. For this, the couple would be required to
pay increased amount of license fee and therefore, it is essential to take into account
the total license fee which they would be required to pay as it would have an impact
on the total cost for hiring additional employees (Bedford 2015). If including such
cost makes total revenue generated less than the total cost incurred, then it is
recommended not to hire additional employee.
Amount
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
Answer to requirement 5:
Date: 27th May, 2015
Small town of Ovilla
Texas
Subject: Feasibility analysis of rented space and existing home facility

MANAGERIAL ACCOUNTING
Dear Frank,
The letter I am writing seeks to identify the feasibility of using their current
home or using rented space for running the business of child care. The hiring of
rented space can accommodate maximum of 14 children and this would require the
couple to hire additional employee and license fee paid to the state along with
insurance cost. The insurance cost that would be required to pay after hiring of
rented space is $ 5000 along with the space and utility cost at $ 650 and $ 125 per
month.
I have laid out all the costs related to hiring new space and the feasibility of
the two options would be determined by computing the net profit margin and the total
amount of expenses that has to be incurred. I have presented a detailed calculation
below that would help in understanding the viability of the options by analyzing the
figures of net profit margin and expenses.
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%

MANAGERIAL ACCOUNTING
It is clearly observable from the calculations presented above that with
increase in total number of children that are provided service; the total amount of
expense is increasing. In addition to this, the net profit margin is declining
continuously under the present accommodation to hiring new accommodation and
with increasing number of children. However, the total amount of revenue generated
has increased and this increase in revenue is offset by increase in the total amount
of expenses (Caglio and Ditillo 2017). Therefore, it would be advisable for the couple
not to hire the rented space and continue providing service using their own home.
Hence, they should continue to operate the facility at their home. If the existing
facility is run, then a maximum of six children should be accepted and it is not
required to hire any employee as the couple themselves is efficient to provide
services.
Regards,
Accountant
Part B:
Answer to requirement 1:
Identifying the management accounting system components using the
examples from the case study:
In this section, the components of management accounting system are
depicted using the case of Apple Inc and Canon Inc. Management accounting
system comprise of the components such as controlling, planning and strategy that
helps in the process of making decision at different levels. One of the aspects of

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creating information is to develop the process of new innovation within the circles of
quality control. It is required by the firm to create new products, new ways of
manufacturing, selling and distribution for remaining competitive. Planning stage of
organization incorporates the assessment of quality and cost groups. One of the
important parts of the management accounting system is the development of the
strategy that helps in creating linkage between the strategic attempts and daily
activities of business (Gureva et al. 2016).
The process of product development by the organizations mentioned in the
case study that is Apple Inc and Canon Inc incorporate innovation that assisted in
generating new information and enabled the managers to make efficient and
effective decisions. In the case of Canon Inc, the market for plain paper copier was
reconceptualized for making the maintenance cost essentially zero. The existing
inverse relationship between the reliability and costs for the mini copier was
contradicted and the manager sought to handle this contradiction by actualization of
the mini copier. This actualization was done by incorporating the control factor of the
managerial accounting system and it was ascertained that it is required to make an
improvement in the drums and cleaner durability. After producing certain number of
copies, the producer would discard the drum so that the copier does not incur any
maintenance cost. Such innovation was introduced because of in depth
understanding and this subsequently added to the capacity of the company
(Carlsson et al. 2018).
Assessing the cost and quality was another component of managerial
accounting system at Canon Inc. It was required to formulate the quality standard for
the different acts associated with the mini copier. It was found that the cartridge was
the new developed fact that was the base of knowledge and was applicable to the

MANAGERIAL ACCOUNTING
other products as well. The task force and the team contributed to the reduction of
time between the planning of developing the products and the till the time products
can be completed. There were added benefits of the reconceptualization of the
market of mini copier such as assembly automation, miniaturization and reduction in
the weight. The development of mini copier was associated with the cooperation
between the development of product and manufacturing of technology. Therefore,
with the enhancing of the organization capability brought many benefits and expands
the base of knowledge (Hopper and Bui 2016).
Now, considering the case of Apple Inc that incorporated the planning and
strategizing components of managerial accounting in the process of product
development. The creation process of Apple Inc for development of Macintosh by
way of revolutionized Mac came with the advantages and disadvantages. The new
ideas and features emerged due to constant interaction between the members of
team of Mac during the period of its revolution that intended to produce Mac at lower
price. Such team became self organization that was brought due to the constant
interaction between different teams comprising hardware and software people
(Bogoviz and Mezhov 2015).
Controlling component was used by the management accounting system of
Apple that resulted in setting up of factory so that Mac can be produced
inexpensively at lower cost. However, the process of developing the product was
critical because of the criticality of the role of the chief executive officer of Apple Inc.
It has been found that the role of leader acted as a facilitator and catalyst in the
process of decision making and the process was further enhanced because the final
arbiter of decision was taken by Steve. From the analysis of facts, it is inferred that

MANAGERIAL ACCOUNTING
the development process of Macintosh incorporated the controlling and decision
making components of the managerial accounting system.
Answer to requirement 2:
Contribution of management accounting to innovation process:
The role of management accounting in the process of innovation is
demonstrated in this section by analyzing the case of two companies which
incorporated innovation in the product development process. An organization
intending to innovate its product by introducing new ideas has higher chances of
success when it is backed by the management accounting system as it helps in
facilitating the decision making prices due to proper planning and controlling.
Innovation creates differentiation between the organizations brought by the
development of the techniques of management accounting. Furthermore, it is
interesting to mention that the traditional and old method of management accounting
results in eradication of the freedom and flexibility that is required by the innovation
and such facilitation is done because of the command culture and control features of
the managerial accounting (Shields 2015).
Innovation at Apple and Canon Inc was facilitated by way of social interaction
that helped information creation for innovation. The controlling and planning
component of management accounting contributes to the facilitate innovation of the
product. Furthermore, the organizations relied on the concept of managerial
accounting that was done for the return on investment and analysis of profit center.
It is the human activity at Canon Inc that formed the basis of entire plain paper
copier reconceptualization and such activities not based on deduction or induction.