Managerial Accounting Case Studies: Cost Analysis and Decision-Making

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Managerial Accounting Case Studies
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Table of Contents
Introduction......................................................................................................................................3
Part a Case study analysis................................................................................................................4
1. Consider the different types of costs discussed in this unit. List any three (3) types of costs
and provide one specific example of each cost from the case.....................................................4
2.Based on the information provided, what information is relevant to the decision to purchase
the appliances...............................................................................................................................6
4. Should the Franks hire the additional employee? Show your detailed calculations..............10
5. Should they continue to operate the facility at home or should they rent space in town? How
many children should they accept? How many employees will they need to hire? Show your
detailed calculations for each scenario.......................................................................................11
Part B.............................................................................................................................................12
1.Identify the components of the management accounting system in each of the two
companies, and discuss their relevance in enabling decisions to be made efficiently and
effectively. Include examples in your answer............................................................................12
2. Explain how management accounting contributes to this innovation process. Include in your
discussion two (2) specific examples from each of the two companies mentioned in the journal
article..........................................................................................................................................14
3. Provide four (4) specific outcomes or lessons learned from the article’s research findings
that will be useful for management accountants in Australian companies to learn from, and
justify your answer [i.e. provide 2 outcomes from each company............................................16
References......................................................................................................................................18
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Introduction
Accounting is study, measurement, analyzing and processing of different alternatives and made
the useful report which may be economical and beneficial useful. Accounting is of many toes
managerial accounting cost accounting and tax accounting. Managerial accounting is study of
parts of accounting so that the management can take decision to run the business successful and
make future studies. Cost accounting is the study of cost incurred in the project . It is discussed
bellowed. Tax accounting is the one which deals the tax of business. It also deals with the profits
of accounting . There is different cost available to different option one has to discuss an option
which is cost effective
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Part a Case study analysis
1. Consider the different types of costs discussed in this unit. List any three (3) types of
costs and provide one specific example of each cost from the case.
Cost accounting is the one of the type of accounting which deals which the cost of product. It
identify the cost analyses it and relate it with the projects of production. It includes the decision
making related to cost.
The type of cost is discussed below:
Direct cost
It is a cost directly related to the manufacturing of the product or services. It includes the cost
related to material, related to labor, and the overhead expenses.
Indirect cost
Cost related to make the product reachable to the market is categorized under this head. Example
of indirect cost is the cost of advertisement, office expense, printing cost and other.
Variable Cost
It fluctuates with the cost of unit produced , it increases with the cost of production and decrease
as the cost reduced.
Fixed cost
It does not the vary with the cost of production it may be of short term and long term foe
example depreciation, lease rent
Operating cost
It is related to day to day business activities but not directly related to production or
manufacturing it includes utilities and rent (Effiok & Eton, 2012).
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Opportunity cost
It is the foregone cost for accepting one option to another .it is a cost of two mutually events one
has to choose one option and to leave other.
Sunk cost
It is cost occurred in the past and that make any difference in decision making. So this cost is
irrelevant in decision making. Example of this cost is the cost of purchasing 5 years ago is now
irrelevant when production has started.
Controllable cost
It is the cost which is controlled by top management whether to increase or decrease. Example is
salary cost. But these are not avoidable
Uncontrollable cost
These are the cost are not in the hand of anyone they will occur. For example depreciation
Case study
The three costs which are described under this are:
Fixed cost: the cost of license is paid annually to state government and it is a cost which is
necessary to run the organization there. The cost of $ 225 is a fixed cost in the given assignment
(Effiok & Eton, 2012).
Variable cost: the cost of meals and snack paid for each student. These can be varies as the
number of student. The variable cost in the given case id $3.20 per child per day.
Sunk cost: the cost of renovation is now not relevant for decision making as this was the cost
occurred in the past.
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2.Based on the information provided, what information is relevant to the decision to
purchase the appliances
There are two types of cost that use to make the decision that is relevant and irrelevant cost . The
costs that directly affect our decision are relevant cost and the costs that are not affect put
decision are irrelevant cost.
The relevant of relevant and irrelevant cost are in the following situations
 Shutting down a loss making or any unit of production
 To take a special order as to buy it or reject it
 Making an decision of purchasing or outsourced
 To sale goods which are semi finished or produced it and then sold it.
Relevant cost
There are different costs for different alternatives these are cost for the future not the past. They
are also referred as differential cost. (Elvik, 2000).
The typos of relevant cost are future cash flows , avoidable cost , opportunity cost, and
incremental cost.
Irrelevant cost
These costs are not considered for decision making. They are May of two types as the cost sunk
cost and the cost which are same for different alternatives
Sunk cost is those which are incurred in the past and now they are irrelevant, they are too
ignored while making the decision.
Case study
There are the two options for a couple whether to buy a dryer and washer or outsource a laundry.
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The information that is relevant for making purchase decision is
Pick up cost this is the cost which is relevant in decision making, if they hire a laundry then the
pickup is done by them, the cost to be determined because it will be saving if they purchase their
purchaser and dryer.
Cost of detergent: if they are purchasing their own washer and dryer so they will be cost of
detergent which will be incurred by them, and also the cost of extra bed sheets have to incur
Capital cost : the capital cost of purchaser and drier also give influence in making decisions .
The decision between the purchased from mart or purchased from store will make a difference in
decision making (Kama & Weiss, 2013).
Accessory cost : the cost of accessories will be the important factor in decision making . There
are two alternatives for them whether to buy it from mart who give installation and cheaper it
from to buy from store.
Assets life: for calculation of depreciation the life of assets is also important. It is also an
important factor relevant decision making. Because depreciation also included as a part of cost
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3. What could it cost the couple to launder clothes? Show your detailed calculations for
each option.
There are three options available to couple whether to outsource the laundry and also pick up is
done by laundry person, or outsourced the laundry, and pick up is done by them, and to do
laundry by themselves.
For the all options relevant cost is given below
For the option I: it is the alternative where couple had an option to take the laundry from the
outside, and laundry person also gives an option to them that the cloths pick up will also be done.
The laundry man charge $ 52 per month for the cost of laundry which include pick up also
For the option II: in this alternative a laundry is done by outsourced and pick up will be done by
couple, the relevant cost will be
The cost of laundry excluding pick up $8 per week = $8*4.33 = $34.64 per month
The cost of mileage will also be the relevant: for the two ways cost of mileage will be
$.56*2*4.33 = $4.85 per month.
For the option III: to purchaser washer and dryer and do laundry by themselves is the option
available to them, the calculation shows is as under
Cost of washer = $420
Cost of dryer = $380
Cost of appliances = $35
Cost of appliances = $835
Life of washer and dryer = 8 years
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Cost of assets per month for 8 years= 8.70
The cost of detergent and bed sheets =$11.67
Net relevant cost for option III is $20.37
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4. Should the Franks hire the additional employee? Show your detailed calculations.
As per increment the additional cost option an option can be calculated. Couple is now working
with the 6 students. If they hire an extra employee they will beer a cost of salary to him but also
it enroll 3 more students which can give an income to the couple. Below it the analysis of cost of
this option:
Cost of extra employee per month for the 40 hours per week =4.33*40*9 = 1558.8 per month
The income from 3 new children is $ 800 per children = $2400 per month
From the above analysis it is concluded that income from hiring an employee will be beneficial
as its extra income of $ (2400-1558.8 )= $841.2
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5. Should they continue to operate the facility at home or should they rent space in town?
How many children should they accept? How many employees will they need to hire? Show
your detailed calculations for each scenario.
The letter to MR. Franks for advising on the option of rented an extra space
Mr. Franks
I had gone through an option for given by you on the space taken on rent for enrolling extra
children as they are beneficial to us or not. I had given detailed information regarding cost and
income for going for alternatives
As per the option if we hire rented space we can enroll 6 new students which give us an income
of $ 800 per student means an additional income of $ 4800
The additional cost incurred is
Rent = $650 per month
Utilities cost = $ 125 per month
Cost of extra insurance = $417 per month
Cost of extra employee = $3117.6 per month
Total additional cost = 4309.6 per month
The income from hiring an extra rent is more than the cost of extra space so couple should hire
an extra space
My all workings are above, so you can conclude from above and make the decisions
Hope it will help you out
Regards
Accountant
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Part B
1.Identify the components of the management accounting system in each of the two
companies, and discuss their relevance in enabling decisions to be made efficiently and
effectively. Include examples in your answer
The cost incurred to manage the management of organization is termed as management
accounting. It ensures that the working of an organization should go too effectively and
efficiently. It main objective how the strategies are formed to achieve the goals of the
organizations.
It is different from financial accounting, financial recording represent the data in a financial
terms so the financial decisions and to audit procedures, whereas the management accounting is
collection of data, analyze it and process to, are it useful information.
The concept of management accounting is:
There are components of management accounting which are discussed below :
Planning: it is the first stage of making any decision is planning. If planning is effective then the
decision making will be effective. Good planning result in effective decision. It includes the
gathering information from the sources analyzing it and makes it an data so the important
decision should be taken (De Waal, 2013).
Staffing: the next step is staffing if the right personnel are employed then the company may
come from loss to profit, it all depends on the right staff and right recruitment. It is also
managerial accounting decision is to give appropriate responsibilities to the right personal sop
the effective decisions is made in time.
Directing : the next is to direct the staff for the attaining objectives. The decision to make
team and allocate all the work to proper team. It also include motivation and encouragement to
employees so the goals can be achieved properly
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