Managerial Accounting: A Case Study on Decision Making

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Managerial Accounting

Table of Contents
Part A: Case Study Analysis...................................................................................................................2
Question 1..............................................................................................................................................2
Question 2..............................................................................................................................................3
Question 3..............................................................................................................................................3
Question 4..............................................................................................................................................4
Question 5..............................................................................................................................................4
Part B: Journal Article Critique................................................................................................................5
Question1...............................................................................................................................................5
Question 2..............................................................................................................................................7
Question 3..............................................................................................................................................7
References................................................................................................................................................9
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Part A: Case Study Analysis
Question 1
Cost plays a most important role in the decision making of an entity. The information
related to the cost is crucial to have proper control upon processes, operations, and
activities.
Opportunity cost
The opportunity cost was said to be essential costs within economics. This opportunity
cost has been utilized in evaluating the analysis of cost-benefit for a project. The
opportunity cost was not stated within the books of an entity. On the other hand, this
cost is being determined within the decision making by calculating the fund outlays. The
opportunity cost portrays the advantages which investor, individual or business entity
neglects while selecting an alternative. Within the case study, the couple put more
emphasis on appliance usage like washer and dryer. However, fault has been identified
within the appliance by the couple. As a result, the couple looks for alternative
appliances that could satisfy their requirements. The alternatives could be computed
based upon the cost of the appliance. Opportunity cost portrays the practice of dryer
and washer upon monthly basis. Another alternative which could accessible by the
couple could be identified as the Laundromat usage. The cost of Laundromat is
dissimilar from Red Oak industry. The incurred cost of the laundry company has been
identified as $52 each week. The case of Laundry Company mainly provides services
such as pick and delivery. Within the second alternative, the couple needs to make use
of various other products like fabric and detergent in Laundromat. In the given case
study, the couple possesses numbers of opportunities cost that is based upon the
utilization of dryer and washer through their respective costing per week. The
opportunity cost has been efficiently illustrated according to the case study (KENTON,
2019).
Actual cost
The case study reflects the actual cost in a definite manner. The actual cost has been
considered as the total cost or expenditure which is required by the firm for
manufacturing the goods and services. The expense or cost that was incurred by the
business for producing the goods and services was stated. These costs were identified
as the actual cost. The appliances cost such as dryer and washer were identified as
$380 and $420 respectively. The cost of renovation was $79500. The cost of outlay has
been also identified as the actual cost. The given case study it has been portrayed that
Pamela Franks and Douglas were investing capital for offering the services of daycare.
This service of daycare incurs a huge amount of investment. The facility for offering
daycare to the children would be costing a huge amount. These costs were identified as
an actual expenditure (Woodman, 2019).
Explicit cost
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The explicit cost was identified as the cost or price that has been paid by the entity. The
explicit cost is a direct cost that business pays to others during the phase of operating
the business. These costs were identified as cost of materials, rent, and wages. The
given case study has illustrated some of the explicit cost. These costs are very essential
in the operations of the business. These costs also help in determining the company’s
earnings and expenses in due course. The information regarding the company’s
revenue and expenditure is very fundamental for the business administration. This
facilitates them to make an effective decision towards running their operations in a most
efficient manner. The explicit cost could be identified as a license cost of $225 per year.
The cost of insurance could be also identified as an explicit cost (TUOVILA, 2019).
Question 2
According to the information, regarding the decision making for purchasing of dryer and
washer is being considered to be based on the use of laundry. There is an increase in
the usage of that laundry as the soiled clothes of the children, some blanket and sheets
remain unwashed. On the first week of operation, the washer and dryer had stopped
working. In the case study, the various other alternatives were mentioned with their
prescribed prices on a monthly basis. Moreover, based on the facility provided in both
the alternative, it is showing different pricings. Red Oak Company was the first option
taken by the couple. This company is giving laundry with pickup and delivery option at a
price rate of the $52per week. The Laundromat is the second option for the couple
where they have to take their own clothes to the laundry. They believe in the self-help
system, so they do not provide pickup or delivery options. The pricing is $8 per week.
The cost of detergent and fabric is not included in this price. Mega Mart is another
option for the couple. This provides bulk supplies of laundry at a price of $35 per
quarter. Apart from all these external options, the last option that was available for
Frank is to purchase a new dryer and washer at prices of $420 and $380 respectively.
The installation cost of the products was around $43.72 and the delivery charge was
around $35. The energy cost is being mentioned accordingly but is not required so it is
considered useless. For the overall calculation, the total energy cost for the appliances
per year is not necessary. The information which was not necessary in the given
scenario is the cost of installing will be free and it is a known fact to every consumer
present across the world (Wiley, 2016).
Question 3
The expenses which are incurred towards cloth laundering were illustrated in the
following:
1. Cost of dry cleaning for each week in the Red Oak company is identified as $52
2. The cost of washing the garments in bulk quantity has been identified as $35 on
a quarterly basis in Mega Mart. The cost of washing the clothes for each week
would be $2.18 ($35/16).
3. The cost of laundering the garments in the Laundromat has been also
determined. On the weekly basis, the Laundromat charges $8 for laundering. The
cost to travel to Laundromat for laundering the garment could cost $0.056 per
mile.
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4. Cost to purchase new appliances
Dryer cost: $380 & washer cost: $420
Cost for installation: $43.72
Cost of delivering the appliances would be $35
Therefore the total cost incurred has been computed as $878.72
Question 4
Frank will be accomplished with only one additional employee. The reason for taking
one additional employee is that Frank is only having the license for caring maximum of
six children. Since one employee can have the capability to handle three children,
therefore, he can be only able to take one additional employee for handling the other
three children. On the basis of the initial investment made by Douglas and Pamela
Frank, no additional employees are required. The reason for this is that they both are
involved in managing the day care services.
Cost of hiring employee undertaken is $9 per hour. For 40 hours per week, it is standing
up to $360 which is the total cost per week for the couple.
Frank can be able to accept three additional children as he is hiring one additional
employee. On the basis of the provided data, a maximum of six children is allowed in
the day care services. The mentioned scenario is reflecting that the hiring of an
additional employee is of no use for Frank. Therefore, hiring is not viable for Frank. The
cost of hiring the employee will be considered to be an unnecessary cost. The
justification for the question given for this scenario is not applicable as the six children
as permitted in the day care services carried out by Frank.
Question 5
To,
The Pamela and Douglas Frank,
Nanna’s House
Ovilla, Texas
Subject: Advising on respective space option
On analyzing the daycare facilities and the costs mentioned in the two scenarios
provided below, it first scenario is helping in focusing on the costing of the current
operational floor. The second operational floor is helping in providing the rented space
along with the costing and facilities of the respective rented space. Being an
accountant, the space option proposed will be helping in providing a precise idea
related to profit margin and overall costing of the day care services.
Scenario One: Current Operational Floor
Costing of Frank will be incurred from the current operation floor are provided below:
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Total area= 820 square foot
Utility cost = $50 per month
Annual fees of state charge for managing the license = $225
Insurance cost = $3840
Charge fee = $800 per month for each child
Additional charge after 4.00 pm = $15 per hour for each child
Cost of meal and snack= $3.20 per child per day
Scenario Two: Rented Space
Space Cost = $650 per month
Utility cost = $125 per month
Insurance cost = $5000 per year
On the basis of the space option available on the rented space, the deal is considered
to be profitable and favorable. The rent cost, utility costs, and the insurance costs are
making it evident that the overall costing is less. The profit is good in the case of this
alternative space. Due to this reason, the increase in profit can be seen with
accommodating a maximum of 14 children in this alternative space option available.
The space option must be accepted by them.
Yours faithfully,
XYZ
Accountant
Part B: Journal Article Critique
Question1
Management accounting system helps the organizational team to focus on important
areas. These areas are effective in planning, directing, controlling, and decision making.
Canon Inc is very much active in its product development activities. The organization
was formed to manufacture quality cameras. After a few years of founding, Canon Inc
was started to attract the customers immensely. The performance of the organization
was rapidly increasing. The organization was able to capture the market share of
cameras. The organization was hiring useful personnel from the other large
organizations. This type of activity helps the organization to get a competitive advantage
over the competitors. Effective management capabilities were able to create workplace
diversity. In the period of 1970s, the organization was decided to introduce Plain Paper
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Copier. This product helps the organization to enjoy massive profitability. The main
intention of the organization was to capture the market of the copier. The organization
was trying to redevelop the market of PPC. By conceptualizing the PPC market, the
organization was able to get information about the target market (Wojtaszek, 2016).
The organization always tried to adopt significant technologies to make its products
better. By adopting advanced technologies, the organization was able to introduce a
smaller version of the copier. The smaller version of a copier is quite better than the
conventional PPC. This type of innovative products helps the organization to attract new
customers. The management accounting system was helping the organization to take
an effective decision. The organization is mainly focused on quality. By using effective
technologies, the organization was able to provide affordable products to the customers.
Useful management accounting system helped the organization to minimize its
operational costs. Before starting a new project, the organization was always calculated
the overall cost. The organization is continuously investing a huge amount of money for
Research and Development. Cost analysis is a vital part of the organization. The
organization takes effective decisions before investing money in a project. For these
reasons, the organization is able to face the challenges of risk factors.
Canon Inc and Apple Inc both uses the innovative approaches. Both organizations have
several similarities with some dissimilarity. However, the management accounting
process of organizations is quite different from each other. The prime similarity of
Canon Inc and Apple Inc is its product development process. The organizations believe
in redeveloping its products on a regular basis. Previously, Apple Inc was dealing with
the manufacturing of computers. The organization was providing a significant
concentration on the Macintosh project. In this project, the organization was trying to
provide quality computers for its customers. However, the organization was not getting
success on this project. Due to this reason, the organization was facing a huge loss.
The customers were not accepting the Mac products as per the expectation of the
organization. The management team of the organization was failed to prepare an
effective strategy for its project. The organization has invested a significant amount of
money for the project Macintosh.
The management accounting process of the organization was not providing significant
support to the management team of Apple Inc. However, within a few years, the
organization was able to get success in its Macintosh project. After the success of the
Macintosh project, the organization started to earn huge amount of revenues on a
regular basis. The organization had faced with several disagreements between the
management team. Many of the management members left the organization due to
conflicts. This type of incident seen in the organization was creating a negative impact
on the organization. But, the organizational profitability was not decreased by the
conflict raised in the management team. Due to the success of the Macintosh project,
the organization started to get success in the field of business (Management, 2019).
Question 2
Management accounting techniques help the organizations to undertake all the
important financial information. This is an action that helps the management team to
take an effective decision. The effective management accounting system can be able to
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provide useful financial and statistical information. Without knowing the financial and
statistical information, the management team of the organizations cannot be able to
take an effective decision. The senior management team has the responsibility to
evaluate financial and statistical information for the betterment of the organization. The
organizational success has been massively depended on the management accounting
system. Activity-Based Costing and Balanced Scorecard are the two important aspects
that help organizations to measure their performance. The organizational management
team can be able to measure the financial performance of the organization through
Activity-Based Costing. The Balanced Scorecard helps the organization to improve the
internal functions of the business (LIM, 2019). Effective use of Balanced Scorecard can
help the management team in its decision-making process. By evaluating Balanced
Scorecard, the organization can be able to understand the perception of the customers.
The growth rate of the organization is very much depended on the perception of the
employees. So, the management teams of the organizations have the responsibility to
know the customers’ perceptions. Activity-Based Costing helps organizations to reduce
their extra manufacturing costs. These types of activities can be able to enhance the
overall profitability of the organizations. The innovative products of Apple Inc and Canon
Inc are able to attract the customers. Both organizations are able to achieve a
significant amount of money by attracting customers. The engagement of the customers
can be known from the effective evaluation of Balanced Scorecard. For example, Canon
Inc has started its journey by manufacturing cameras. The organization got massive
success in its camera products. The organization was aware of its customer base.
Then, the organization was intending to enter into a new market. After few years, the
organization was able to introduce PPC (Plain Paper Copier). Due to this activity, the
organization was able to increase its customer's base.
The evaluation of customer base on regular basis can only be possible by Balanced
Scorecard process. In the case of Apple Inc, it has been seen that the organization was
highly dealing with manufacturing of computers. The organization was trying to provide
low-cost computers to customers. However, that project of Apple Inc was failed due to
mismanagement of the organizational management team. Within a few years, the
organization was able to get a breakthrough and get success on its Macintosh project.
The organization was adopting Activity-Based Costing process for the Macintosh
project. Due to this reason, the organization was able to reduce its project costs. The
organization was gaining huge amount of money after completion of the Macintosh
project (Accounting, 2019).
Question 3
Innovation is considered to be the most significant factors within an organization.
Similarly, Canon Inc is entirely reliant upon the innovation aspects. In the year 1933,
Canon Inc has launched a camera, and for introducing this particular product, the
management has taken some risk. The risks undertaken by the company are the
technological risks, and investment risks. Therefore, it can be said that the organization
has the capability to go through immense risks in order to establish the product in the
market. These types of activities proof that the organization management has played a
pivotal role and most importantly, they have the ability to handle such risk. Canon Inc
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has gone through a rapid growth period from the year 1933 till 1950. Hence it can be
said that without strong support from the management group, this type of success is not
observable. The entire team had focused on the establishment of new product in the
market due to which the innovation of the new product was carried out. This scenario
reflects that the management team of Canon Inc has the ability to tackle risks. The
Australian companies must learn the risk-taking capabilities of Canon Inc.
Canon Inc has also the capability to attract customers by its transformational capability.
The organization has started its business by establishing camera products in the
market. The camera products enabled organization to gain the success in the market.
This helped the organization to penetrate into new market. However, the changes in the
product concept from Camera to office equipments are showing the vast capability of
Canon Inc. It is also reflecting the transformational capability of Canon Inc. Some years
later, the organization has introduced a smaller version of Plain Paper Copier (PPC).
For this reason, Canon has the ability to attract medium and small business holders.
The organization will never rely on a particular market in the transformational process
for the long term. So, Australian companies required to learn about the transformation of
the business (Yang, 2016).
Apple Inc is said to be the most well-known company across the world. This
organization has strived to sustain in the market for the long term in its early period. The
company has come back with full potentiality and ruled the entire technological market.
In the project called Macintosh, the company has gone through some challenges. The
organization has tried to complete the project by any means but they failed. Apple Inc
has got success over Macintosh Project after a few years later. It can be said that one
could learn how to carry out tasks by giving full dedication. The entire team has learned
about patience, and with the help of patience, they got success over the project.
Organizations like Apple Inc mainly deal with computers at the initial stage. It can be
said that companies have invested their enough fund in this project. They had achieved
success and attained much benefit in its long term business. In this present situation,
the company has involved itself in creating technological equipment. Hence, it can be
evaluated that without investing the proper fund in the right place, no organization is
going to uphold their business for the long term (Cleartax, 2018).
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References
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May 2019].
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at: https://www.investopedia.com/terms/o/opportunitycost.asp [Accessed 28 May 2019].
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Yang, X. (2016). New Products Management 11th Edition by Crawford. [online]
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