Analyzing Costs and Profits in a Child Care Center

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Managerial Accounting

Table of Contents
Introduction............................................................................................................................... 3
Part A........................................................................................................................................ 4
(1)...........................................................................................................................................4
(2)...........................................................................................................................................5
(3)...........................................................................................................................................6
(4)...........................................................................................................................................9
(5).........................................................................................................................................11
Part B...................................................................................................................................... 13
a........................................................................................................................................... 13
b).......................................................................................................................................... 15
c).......................................................................................................................................... 16
Conclusion.............................................................................................................................. 17
References.............................................................................................................................. 18

Introduction
The impact of Managerial accounting in business practices gradually improving day by day
because managers need accounting information to make important business decisions. The
managers critically assess every accounting information and examine the accounting reports
of the company to arrive on final decision making. This study will critically examine a case
study and critically examine the article to conclude how management accounting works in an
organization. The part A of the study will be discussing the different types of cost that are
used in the case study such as fixed cost, the variable cost, and semi-variable cost. The
calculation of each aspect in this study will be briefly discussed to take an insight into the
different methods that are used in the calculation of cost. The part B of the study will be
dependent on the article canon and apple which show their comparison on different units of
business. part B of the study will also explain the different components of accounting systems
as well as the process of information creation, so this entire study dependent on the case
study and an article.

Part A
(1)
The costing is a technique that is used by the companies to calculate to the total cost that
arises on a product the cost of a product includes everything like – expanses behind the
production, packaging cost, distribution cost and margin of a company. The above factors are
very important in ascertaining the cost of production, the costing is an important tool used in
the determination of cost of a particular product and service. The main purpose of costing is
to determine the actual cost of a product with a margin of the company so that the company
gets actual profit from sales of the product. The costing method is also useful in the
determination of workers wages according to their contribution to the operations of the
company.
Different types of cost that are used in the case study.
 Variable cost: the variable cost of a company is changing according to their level of
production; the production output is an important factor in the determination of variable
cost of a company (Ueckerdt et. al., 2013). the increase or decrease of variable cost is
dependent on the production of a firm, the prime example of variable cost is the raw
material cost of a company which is change according to the production of goods. In
this given case study, the meal cost that arises on the food of the child is considered
as a variable cost which is $ 3.20 and change according to the entrance of the child's
in the care center.
 Fixed cost: the fixed cost is just opposite the variable cost, where cost never
dependent on the level of production output in the company. the fixed cost remains the
same despite heavy production in the company, the prime example of fixed cost is
property tax and the interest occurred on the property. The cost occurred on the
insurance of child's is $ 3480 that cost is fixed cost because that cannot change
according to variance in the children.
 Semi-variable cost: the semi-variable cost is also a kind of semi-fixed cost because of
semi-variable cost change according to the level of production as well as it remains
fixed if the production is not done in the company (Martens and Teuteberg, 2012). the
semi-variable cost is remain fixed for some point but after that the cost increase like –
the license fees paid by the child care center to the state is around $ 225 for the six
children and if the care center will admit more children's in the care center than its
necessary to take permission from state than the extra cost occurred on the child care
center is called semi-variable cost.

(2)
Relevant information
The case study provides every relevant information for calculating the cost that occurred on
every child in the care center. The information such as fixed cost, variable cost, semi-variable
cost and depreciation cost, all the above information is very crucial in the decision-making
process of a company. The decision-making process of a company requires a lot of good
quality information which is then the management asses to take a decision. The cost which is
related with the hiring of employees and laundry costs of a child's also given in this case
study which is quite useful for the proper analysis of case so the above information which is
given in the case is relevant for the analysis of the case.
Irrelevant cost
There is a lot of information in this case study which is not useful from the decision making
the perspective of a company despite that the information is useful in the operations but that
does not make any impact on the calculation of cost and the decision-making process. The
information about the past life of owners and why they entering into the child industry is
completely worsted from a decision making perspective. The information about the initial
purchase cost of equipment is irrelevant in the given scenario because there is no use of that
cost in the current business scenario.

(3)
Frank has basically two options one is related to the laundering of clothes and the second is
related to washer and dryer purchase. The below calculation is present a perfect picture of
both the options.
Option 1
Launder Clothes
Option 1st
Costs Amount (Per month)
For pick-up and Deliver 52
Launders cost 32
Detergent 11.66
Total 95.66
Amount of 8 years 9183.36
Option 2
Purchase of washer and dryer:
Option 2 Amount (Per month)
From Frank carrying 13.44
Launders cost 32
Detergent 11.66
Total 57.1
Amount of 8 years 5481.6
The above calculation presents the best view to frank, the second option is quite better than
the first option for Frank because the second option cannot require any additional cost and in
the second option the less cost involved as compared to the first option.
Working Notes:
Cost of miles as per month

Miles (two way) 6
Per mile 0.56
Total per week 3.36
Weeks in month 4
Month 13.44
Landers Cost
Per week 8
Weeks in month 4
Month calculation 32
Detergent cost
Per quarter 35
Months in quarter 3
Months calculation 11.66667
Appliances 2nd Purchase of washer and dryer
Purchase of Washer and dryer
Particular Amount
Washer cost 420
Dryer cost 380
installation cost 43.72
delivery cost 35
installing appliances -
Washer energy cost 960
Dryer energy cost 1160
Total cost 2998.72

Working notes
Washer energy cost
Per year 120
Months 12
Per month 10
Eight years cost 960
Dryer energy cost
Per year 145
Months 12
Per month 12.08333
Cost Eight years 1160
In the second option of the purchasing appliances, the cost of material and other cost is
arising less in the first option as compared to the second option and if frank want to select one
option from both the option than frank must go towards the second option because the
second option is more financially viable than the first option (Johnson, 2012).

(4)
Cost of maintenance which arises on the care center of a child.
Cost per children
Particular Day Year Month
State charges 225 18.75
Insurance charges 3840 320
Franks Utility cost 600 50
Meals and snack 19.2 7008 584
Total 11673 972.75
Per children 1945.5 162.125
Frank’s profit statement:
Frank Profit per children
Particular Amount
Charges from parents 800
Cost 162.125
Profit 637.875
Employee Cost as per the information:
Employee cost
Particular Amount
Per hour 9
per week cost 360
per month 1440
Comparison as per children and employee
Particular children Amount

employee cost -1440
Extra children charges from parents 9 7200
cost of children 9 -1459.13
Profit 4300.875
Per children 477.875
Effects on profit
Effects upon profit
Particular children Amount
employee cost -1440
Extra children charges from parents 3 2400
cost of children -162.125
Profit 797.875
Per children 265.9583
It's always important for a company to higher an employee from outside if the burden of
business on owner increases. In this case, if the frank higher an employee that provides him
an extra profit of $ 265.95 which is quite good from a business perspective.

(5)
Cost per children
Particular Amount Year
Space cost 650 7800
Utility cost 125 1500
Insurance 416.6667 5000
Total 1191.667 14300
Per children 99.30556 1191.667
Meals and snack 19.2 230.4
Total per children 118.5056 1422.067
Employees needed
Particular Amount
Total children 12
Handle children 3
Per working member 4
Frank Profit per children
Particular Amount
Charges from parents 800
Cost 118.5056
Profit 681.4944
Employee cost
Particular Amount
Per hour 9

Per week cost 360
Per month 1440
Employee cost 4320
Profit
Particular Children Amount
Employee cost -4320
Charges from parents 12 9600
Cost of children 12 1422.067
Profit 6702.067
Per children 12 478.719
It's more beneficial for Frank to move in rented house, the house facilities capacity of 14
children's but it’s better for them to provide child care to only 12 children and 3 employees
and frank will be enough to run the entire business (Petrick and Simpson, 2013).