Managerial Accounting Analysis for Nanna's House Business

This managerial accounting report analyzes the childcare business "Nanna's House," focusing on various cost types, including fixed, variable, and semi-variable costs. The report evaluates the best alternative for purchasing appliances, considering relevant and irrelevant information. It calculates the costs associated with different laundry options and recommends the most cost-effective solution. Furthermore, the assignment examines the financial impact of hiring additional employees, determining the optimal number of employees to maximize profitability based on different capacity levels. The analysis includes income statements and profit calculations to support the recommendations and decision-making processes within the business context.

Managerial
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
PART 1............................................................................................................................................1
1.) Types of cost discussed in the given case...............................................................................1
2.) Best alternative to purchase appliance....................................................................................2
3.) Cost that couple has to incur to launder cloths.......................................................................3
4.) Calculation of Franks additional employee............................................................................4
5.) The number of employee which is needed to be hired...........................................................5
PART 1............................................................................................................................................6
1.) Management accounting system in Canon Inc. and Apple computer Inc..............................6
2.) Contribution of management accounting to innovation process............................................7
3.) Specific lessons from article research....................................................................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Managerial Accounting is a process in which managers identify, analyse, measure,
interpret and communicate the information in order to achieve the organisational goal. It is also
known as a cost accounting. It focuses on all different field of accounting period which aims at
providing information about the business operation metric to higher level of management.
Managerial accountant uses these various information which is related to various cost
associated with products and services purchased by the company. In order to understand the
concept of managerial accounting a business of Nanna's House is taken. It is a child care
business started by Douglas and Pamela. This report contains the detailed information about the
various types of cost and the components of managerial accounting. It also contains the
detailed analysis of that how managerial accounting helps in contributing towards the
innovation process and the various outcomes which are learned from the research finding about
article.
PART 1
1.) Types of cost discussed in the given case
A cost is known as the amount which an individual or company has to incur in order to
get something in return. In term of business cost is basically the monetary value of material,
effort, resources, utilities and time which are consumed, various risks incurred and the forgone
opportunity in the production and delivery of services and goods (Fahlevi, 2016). Following
are the three types of cost which are being discussed in the given case:
Fixed Cost: Fixed cost is a cost which is incurred by any business organisation which
does not change due to the increase or decrease in number of goods sold or produced, these
cost tend to remain constant at every level of production. It is classified as an operating cost for
the business as it can not be avoided by company irrespective of the level of sales. Fixed is
generally used in break even analysis in order to determine the price for the good and the level
of production and sales on which company does not earn any profit or incur any loss. In the
above given case it is stated that child care business started by Douglas and Pamela it incurred
various fixed cost such as fixed annual insurance of $3840, the overall cost associated with
washer and dyer is $420 and $380. the total cost of delivery of the appliances is to be fixed at
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$35 and the installation cost which the couple has to incur is $43.72. The cost of mileage was
stated at $0.56 per mile after the fixed price which is applicable to 6 mile in a two way journey.
Variable Cost: A variable cost is a cost which is incurred by a business organisation
and it changes in the proportion of the number of good or services produced by a business
organisation (Granof, and et. al. 2016). In the above given case of Child home care business the
variable cost is the monthly charges for the child care service provided by them which is $800
per month per child and it may vary as per the number of children availing its service. Its
variable cost also includes the cost per hour which an individual has to pay if it come after 4
PM the additional cost is $15 per hour. Addition to that Douglas and Pamela also provides the
snacks and meal at a cost of $ 3.20 per child. The cost of laundry is also included in the
variable cost as it changes on the number of weeks, cost of laundry per week is $8.
Semi Variable Cost: Semi Variable cost is the cost which is to be incurred by any
business organisation. This cost consists of both variable and Fixed cost, in this type of cost
one portion of a cost is fixed that is it cannot be changed and company has to incur those even
with zero production whereas the other part is variable and is changes as per the proportionate
change in the level of good or service produced. In the above given case scenario of Nanna's
House, semi variable cost which is to be incurred by them is the hiring of new employees. One
employee can take care of maximum of 3 children and if the number of children increase to 4
they had to hire 2 employee and if they want to expand their total capacity to 14 it have to hire
3 new employees which can be considered as a semi variable cost.
2.) Best alternative to purchase appliance
There are various information which can be considered in the decision making process
as it helps to outline the necessary things should be in mind while taking any decision.
Relevant information is very important as highlights the various points which should be kept in
mind while taking any decision (Koester, Shevlin, and Wangerin, 2016). In the above given
case company has to purchase an appliances which would help Nanna's House to launder the
cloths. This appliance will be used as an assets for the company as it will be used to provide the
laundry service for the children who will be availing the service of child care the relevant
information which is necessary for decision making process is the total cost of procurement of
the asset and the cost required for it installation. The useful life of an assets is also an important
information which is relevant and the rate of depreciation and the method through which it is
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going to depreciate it. The irrelevant information is the cost of detergent which is required by
the machine. The information which is relevant is the cost of washer that is $420 and the cost
of dryer which is $380 delivery charges taken by the store is also considered as an cost of asset
which is charged by store is $35 and also the useful life which is given as 8 year is considered
as a relevant information. The irrelevant information which is given is the purchasing cost of
laundry supplies which it will incur is stated as $35 per quarter.
3.) Cost that couple has to incur to launder cloths
In the above case Nanna's Homes has three option available with them such as to
launder the cloth by it self or by taking a laundry service from Read Oak Laundry and Dry
cleaning to launder its cloths or by purchasing of a new appliance. Following is the calculation
of the cost which will be incurred in all the available options available with it:
Option 1: Self serve laundry
1.
laundry form Red Oak Laundry and Dry
Cleaning
$52 per
month
Option 2: Delivery laundry service
6 miles for 4.33 weeks (6*4.33) 25.98 0.56 per mile 14.55
$8 Per week cost of laundry 34.64
Cost of detergent or fabric sheer per month (35/3) 11.67
Total cost of appliance per month 60.86
Option 3: Purchasing of new appliance
Particulars $
Washer and dryer cost(420+380) 800
Additional accessories for both appliances 43.72
Delivering cost 35
Total cost of appliances 878.72
Annual Depreciation 109.84
Per month Depreciation 9.15
Incremental cost (120+145) 22.08
31.24
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From the above calculation it can be established that from the available three option
company will go for the option 3 that is to purchase a new appliance to launder its cloths. If it
takes service from Red Oak Laundry and Dry Cleaning the cost which company has to incur in
this case is $52 per month whereas in the option one that is to launder the cloth by themselves
will incur total cost of $60.55 and in the third option total cost which will be incurred by them
in laundering cloths is $31.24. It is beneficial for the company to go for the option 3 as with
this it can save up to $30 per month on its laundry.
4.) Calculation of Franks additional employee
Following is the calculation of profit and loss in the case in no employee is hired by
them, total number of children it can take now is 6:
Income statement for month $
Revenue
Fees from each child 800*6 4800
Expenses
State and annual fees 225/12 18.75
Insurance charges 3840/12 320
Cost of meals and snacks 6*3.2*30 576
Depreciation (79500/25)/12 265
Utility cost 50
Total cost 1229.75
Net profit 3570.25
Following is the calculation of profit and loss in the case if it hire and additional
employee the total number of children it can take now is 9:
Income statement for month $
Revenue
Fees from each child 800*9 7200
Expenses
State and annual fees 3.125*9 28.13
Insurance charges 3840/12 320
Cost of meals and snacks 6*3.2*30 576
Depreciation (79500/25)/12 265
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Utility cost 50
Salary to additional employee 40*9*4.33 1558.8
Total cost 2797.93
Net profit 4402.08
From the above calculation it can be established that the total revenue which is
generated if no additional employee is hired is stated at $4800 and total cost which it incurred
is $1229.75 and the net profit which company earned from this child care business in one
month is $3570.25 If the company hires an additional employee total capacity of its business
will be increased to 9 children in that case total revenue generated by company is $7200 and
the total cost which will be incurred by them is $2797.93 and the net profit which a company
can earn is $4402.08. this states that if it hires an additional employee it can earn greater profit
and increase its financial position of the company.
5.) The number of employee which is needed to be hired
Capacity at 9 children
If an additional employee is hired
Revenue
Fees from each child 800*9 7200
Expenses
State and annual fees 3.125*9 28.125
Insurance charges 3840/12 320
Cost of meals and snacks 9*3.2*30 864
Depreciation (79500/25)/12 265
Utility cost 50
Salary to additional employee 40*9*4.33 1558.8
Total cost 3085.92
Net profit 4114.08
Capacity at 14 children
If an additional employee is hired
Revenue
Fees from each child 800*14 11200
Expenses
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Rent 650
State and annual fees 3.125*14 43.75
Insurance charges 5000/12 416.67
Cost of meals and snacks 14*3.2*30 1344
Depreciation (79500/25)/12 265
Utility cost 125
Salary to additional employee 40*14*4.33 2424.8
Total cost 5269.22
Net profit 5930.78
The above calculation states that if the company works at a capacity of 9 children then
the total cost incurred in one month is estimated at $3085 and total revenue which is generated
is $7200 resulting in the net profit of $4114.08 whereas if the company works in a rented place
at a capacity of 14 children than the total revenue will be at 11200 and total cost incurred by
the company in providing this service is stated at 5269.22 and 5930.78 will be the total profit
generated by Douglas and Pamela. It should go with second option to work at a capacity of 14
children.
PART 2
1.) Management accounting system in Canon Inc. and Apple computer Inc.
Management accounting system which is used in Canon Inc. and Apple Computer Inc.
helped both the companies to bring in new and innovative product which resulted in the higher
growth of the company (Narayanaswamy, 2017). Following are the various management
accounting system used in Canon Inc. and Apple Computer Inc.:
Cost reliability improvement system: This is a management accounting system which
is used in both Apple and Canon Inc. in order to improve its total cost of production of
production so that it can provide their product at a reasonable price to its customer in order to
enhance its market image an increase its financial position by taking competitive advantage
over its competitors. Apple computers also focused on its cost as it analysed that many
consumers are unable to use it due to the costlier products. In canon it also realised to innovate
its product and reducing its cost by bringing in new lighter copier machine.
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Price optimisation system: This system was used in both Canon as well as Apple
computer and is helped both the companies to properly optimize the cost at which it can sell it
latest developed product in order to get the competitive advantages over its competitors. In
Canon Inc. it launched its product at a price which is affordable by its customers after properly
optimizing its cost using the price optimisation system in order to select the price which can be
available by different customers of different group.
Where as in the Apple computer Inc. it also used its price optimisation system in order
to find out the best suitable price to sell its newly developed Macintosh computer.
Job order costing system: In Apple Computers Inc. and Canon Inc. it is used to
identify the cost of each job associated with the production process. It helped to see the actual
cost associated with various jobs which are involved in the production of its new and
innovative product (Nitzl, and Chin, 2017). In apple Inc. it identified the individual cost in the
development of its new macintosh technology and spread its cost over total cost. In canon Inc.
it also identified the cost which is associated with the production process of its new lighter
copier machines. This system also helps the companies to reduce the cost.
Quality control system: Quality control system is used by the companies to keep and
maintain the quality standards of its products produced by the company in order to increase its
consumer base and generate higher revenue. In apple Inc. it implemented this system to
enhance quality of products and at a lower price. Where as in the Canon Inc. it used this system
to reduce the cost and reducing the weight of its copier machine by enhancing its overall
quality of the product.
2.) Contribution of management accounting to innovation process
Innovation is the process which helps the organisation to gain the competitive
advantage over its competitors by improving its financial position and brand image in the
market (Park, Ko and et. al., 2016). It also helps companies to develop a new ideas which it
can implement in its production process to reduce its cost of production and enhance its profit.
In the given article it is stated that in order to beat the competition Canon has introduced a new
PPC in the year 1969 with new and innovative technology. With the help of the management
accounting system it identified its problem and developed a new strategy to launch its new
copier machine which should be cost effective and lighter in weight.
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It introduced its new lighter copier machine with the help of a new technology and
prepared its budget with the help of management accounting system in order to prepare budget
and report it to higher level of management. This machine was effective in many ways which
included various features such as lightweight, easy installation, clear copies and cost effective.
Apple Computer Inc. uses management accounting system which helped its managers
to innovate new technology and it decide to work on Macintosh project, this system also helped
the managers to create an effective budget and reported it to the higher level of management to
take effective and meaningful decision to achieve its organisational goal.
With the help of management accounting system they supported its innovation process
by identifying various problems in allocation of cost and producing its new innovative Mac
computer. In the year 1979 it examined the feasibility and estimated that how much target
customer it can attract with this new innovative product.
3.) Specific lessons from article research
The accounts get these various information and produce reports which help top level
managers to formulate an effective strategy and decision (Summers and Wood, 2017). It
evaluates that company is incurring any loss or generating profit from its business operations.
Following are the lessons which states the importance of management accounting:
Canon
Management accounting system has been very useful for Canon as it helps the manager
to assign their work among different department which helped them to achieve its desired
organisational goal much fast. It also helped the managers to delegate the authorities in order to
get the work done in less time.
The cost accounting system has helped their managers to develop a new an innovative
mini copier at a reasonable price which resulted in the increasing the interest of its customers.
Financial information system of Canon has helped managers to quick and effective decision on
the basis of information presented through these systems.
Apple Computer
The above article states that the management accounting system is considered as one of
the important system for management as it provided apple to redefine its problems and provide
suitable solutions as per the need in order to help them to increase it production and regain its
market position.
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Proper accounting system helps the managers to get the accurate budget information
and can formulate strategies in order to overcome the problems identified in the previous years
budget. Managers working in Apple analysed the problem that maximum number of customer
are not able to afford its product so it decided to produce a low cost computer to increase its
market base.
CONCLUSION
Managerial accounting helps the companies to increase it profit margin by optimizing
its accounting system and creating proper budget and identifying the problems. From the above
file it can be established that management system also supports the companies to support is
innovation process. This report also states the various alternative and the information which is
relevant in decision making process.
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