Managerial Accounting Report: Analyzing Costs and Business Decisions

This report provides a comprehensive analysis of managerial accounting principles through a case study of a child care business, Nanna's House. The report begins with an introduction to managerial accounting and its significance in evaluating business success. It then delves into the identification and explanation of different cost types, including fixed, variable, and semi-variable costs, with examples relevant to the case. The report further examines relevant and irrelevant information for decision-making, specifically concerning the purchase of appliances like washers and dryers. Calculations for laundering clothes using different methods are presented, along with an evaluation of costs associated with hiring additional employees. A letter offering advice to the business owners regarding space options, the number of children to accept, and employee hiring is included. The report also identifies elements of management accounting systems that aid in decision-making and explores the contribution of management accounting to innovation. Finally, the report evaluates outcomes useful for management accountants within Australian companies, and offers a conclusion summarizing the key findings and recommendations. The report includes references to support the analysis and conclusions.

Managerial Accounting

Table of Contents
INTRODUCTION................................................................................................................................3
MAIN BODY.......................................................................................................................................3
PART A.................................................................................................................................................3
1. Explaining different types of costs used in case. Also, three types of costs with example.........3
2. Information containing both relevant and irrelevant facts for decision making related to
purchase of appliances.....................................................................................................................4
3. Calculation for laundering clothes...............................................................................................5
4. Evaluating cost for Franks related to hiring of the additional employee for taking care of
additional children in the child care.................................................................................................5
5. Letter to the Franks advising on the space options related to continue to operate child care at
home or rent space in town? Number of children to be accepted? Employees need to be hire?.....6
PART-B.................................................................................................................................................9
1. Identifying the several elements of the management accounting systems which will help the
companies in making suitable decisions..........................................................................................9
2. Explaining the contribution of the management accounting towards the process of innovation.
.......................................................................................................................................................10
3. Evaluating the four outcomes that are most useful for the management accountant within the
Australian companies.....................................................................................................................11
CONCLUSION..................................................................................................................................12
REFERENCES...................................................................................................................................13

INTRODUCTION
Managerial accounting refers to the measure that is used for evaluating the failure or the
success of business and in meeting the goals of the business. It helps the managers in making the
effective plan for future and also in preparing the reports that results in providing the accurate
information regarding the finances and the operations of the business. It is known as one of the
important branch of the accounting which is majorly concerned with measurement, identification
and the interpretation of the accounting information so that the operations of the company can be
managed smoothly. It helps in evaluating the performance through the appropriate controlling
function so that goals could be achieved as per the vision set. The present study is based on different
aspects of the managerial accounting that aims for developing an understanding of the concept
relating to the cost and the systems of the management accounting that provides for taking efficient
decisions which in turn results in achieving the growing success in the long run. Furthermore, the
report includes the critical evaluation of the journal article based on two companies that is Canon
and Apple computers.
MAIN BODY
PART A
1. Explaining different types of costs used in case. Also, three types of costs with example.
Cost refers to the amount or price which has to be paid or spent for making consumption of
any product or services. Douglas and Pamela Frank is running a child care business named Nanna's
House in the small town of Ovilla, Texas. Franks has to incur many cost expenses for conducting
their child care business successful which includes following:
Three types of cost are as follows:
1. Fixed cost – It is also known as Non variable cost. Fixed cost are those costs which doesn't
vary or change with the change in the volume or value of output for a definite period. The
total amount of fixed cost always remains constant throughout the time period whether there
is any increase or decrease in the level of business activity or output produced (Lipani and
et.al., 2016). Example of fixed costs includes rent and tax of building, insurance charges,
depreciation of plant, machinery and building, salary of permanent staff etc. For Nanna'
house, fixed cost following are the fixed cost - Annual fee charged by the state for
maintaining License amounts to $225. Insurance cost $3,840 on annual basis.
2. Variable cost – Are those cost, which always varies or fluctuate with total volume of output.
This cost changes in total with the direct change in volume of production or business
activity. Increase or decrease in the cost depends on the change in level of output

(Freundlich and Frost, 2019). It depends on production, sales activity or any other measure
and change in same proportion. Variable cost changes in total but remain constant per unit of
production. For example, direct material, labour, supplies, direct expenses etc. In this case,
cost of snack and meals $3.20 per child. Utility cost of daycare $50 each month.
3. Semi variable cost – This cost is combination of fixed as well as variable cost as it is
neither perfectly variable nor it is absolutely fixed in context of change in volume of output.
This cost doesn't change in the same proportion as the volume of output changes. For
example - power costs, telephone charges, repair and maintenance costs etc. In above case,
semi variable cost includes washer & dryer which will increase energy costs by $120 &
$145 per year respectively.
2. Information containing both relevant and irrelevant facts for decision making related to purchase
of appliances.
For purchasing appliances following information is considered as favourable for Douglas
and Pamela Frank. As the old appliances of washer and dryer cost $440 in total which has stopped
working. Being a child care business, it is very important to have laundry facility at the business
premises for laundering the soiled clothes of the children, blankets, and sheets. For the purpose of
laundering, Nanna's House has to rely on Red Oak Laundry and Dry Cleaning which charges $52
per month including pick-up and delivery. Franks also have the option to take clothes once a week
to Laundromat which is three miles away (for one way) & cost $8 per week. But this alternative
service will add to cost of detergent by $35 every quarter. So to overcome all this unnecessary cost
expenses, it is better for Franks top purchase washer $420 and dryer $380 with the installation, cost
of $43.72 & life of 8 years. The manufacturer store charge $35 for delivery of the appliances as
well. It is better for Franks to purchase new machine as it will resolve their laundry related problem.
The new machine including washer & dryer will increase energy costs by $120 & $145 per year
respectively as per the manufacturer is a kind of relevant information as it will lead to increase in
the variable cost as well for the child care business.
Information irrelevant related to purchasing decision for Douglas and Pamela Frank are as
follows – As Franks are undertaking the business of child care, it is very important for them to have
an open space for play, reading, sleeping and other activities. The premise is equipped with a small
kitchen & laundry area, two bathrooms. In case of laundromat, which is three miles away incurs
mileage rate of $0.56/mile which is irrelevant kind of information as it is not related with the
purchase decision of machine.

3. Calculation for laundering clothes.
1. When Franks uses the laundry services of Red Oak Laundry and Dry Cleaning, following cost it
will charge:
For laundering clothes from Red Oak
Laundry and Dry Cleaning
Particulars Amount (in $)
Charges per
month 52
2. Laundromat self service alternative will cost:
For laundering clothes from Laundromat
Particulars Amount (in $)
Mileage rate (per
mile) 0.56
Total distance
(mile) 6
Total mileage cost 3.36
Supplies Cost
(every quarter) 11.67
Laundering Cost
per week 8
Total cost 23.03
Days in month 30
Days in week 7
Charges per
month 98.7
3. Purchase of appliances
For laundering clothes by purchasing of
new appliance
Particulars Amount (in $)
Cost of washer 420
Cost of dryer 380
Installation cost 43.72
Delivery cost 35
Total cost 878.72
Total cost of purchasing appliances is $878.72

Depreciation expense of washer
Particulars Amount (in $)
Cost of Washer 420
Installation cost 43.72
Total cost 463.72
Scrap 0
Life 8
Depreciation
Amount 58
Particulars Amount (in $)
Depreciation 53
Energy costs of
washer 120
Total cost of
washer per year 173
Per month cost
of washer 14.42
Depreciation expense of dryer
Particulars Amount (in $)
Cost of dryer 380
Installation cost 43.72
Total cost 423.72
Scrap 0
Life 8
Depreciation
Amount 53
Particulars Amount (in $)
Depreciation 53
Energy costs of
dryer 145
Total cost of
dryer per year 198

Per month cost
of dryer 16.5
Interpretation – From the above table it can be evaluated that Douglas and Pamela will have
to pay $52 per month for seeking the laundering services from Red Oak Laundry and Dry Cleaning.
Whereas if the couple uses the self service alternative of Laundromat, it will cost $98.7 per month
which is much higher than first option. If Franks purchases the appliances which is having an
estimated life of 8 years than it will cost them one time investment of $878.72. With purchase of
washer it will cost $14.42 per month and dryer will cost $16.5 per month. So the total cost of
laundering clothes from purchase will be $30.92 per month. So, it is better to go with third option
which is seeking laundering services by purchasing of appliances as it will help the couple in saving
cost expenses per month.
4. Evaluating cost for Franks related to hiring of the additional employee for taking care of
additional children in the child care.
When Douglas and Pamela are having 6 number of children in their child care, following
will be the profit amount after meeting all business expenses:
Particulars Amount (in $) Total Amount
(in $)
Fee for full day
(per child per
month)
800 4800
Additional fees
(per child per
hour)
15 2700
Total children 6
Days in month 30
Days in week 7
Total profit 7500
less: Cost of meal
and snack (per
child per day 3.2 576
less: salary to
employee 9 39
Net profit 6885
By increasing the number of children in their child care upto 3, following will be the profit
amount after meeting all business expenses:
Particulars Amount (in $) Total Amount
(in $)

Fee for full day
(per child per
month)
800 7200
Additional fees
(per child per
hour)
15 4050
Total children 9
Days in month 30
Days in week 7
Total profit 11250
less: Cost of meal
and snack (per
child per day
3.2 864
less: salary to
employee 9 39
Net profit 10347
Interpretation – If Nanna's House wants to gain more profit from its business, then it should
carry on its business operation by nurturing 9 children instead of 6. The overall profit will be of
$3,462 per month with which Franks can adjust their additional employee cost.
5. Letter to the Franks advising on the space options related to continue to operate child care at
home or rent space in town? Number of children to be accepted? Employees need to be hire?
1. Should continue to operate the facility at home or rent space in town?
Letter
To
Nanna's House
28 May, 2019
Dear Franks,
For making more profit out of current child care business, it is recommended to continue the
business operations from own house premises rather than moving to the rented space in the town
side. The child care facility rendered by house has large open space for playing, reading and other
activities along with sleeping area for children. This facility is also well equipped with a small
kitchen, two bathrooms and laundry area. At own house, Franks can give services to 6 number of
children which will cost them for around $370 per month. If child care services is rendered by
rented premises in the town side, then the couple has to bear a high cost of $1,192 per month which
will increase their other expenses as well. Also, if Douglas and Pamela shift to rented space it will
result in decrease in their profit margins. In rented space premises though they can serve to 14

children at a time, but it will adds to increase in cost of additional employee as well. So, it is better
suggested for Franks to continue their business operations from their own home. Expenses incurred
if:
1. Business carried on from own home
Own House
Particulars Amount (in $)
Space (per
month) 0
Utilities (per
month) 50
Insurance
(per month) 320
Total cost 370
2. From rented space
Rented Space
Particulars Amount (in $)
Space (per
month) 650
Utilities (per
month) 125
Insurance (per
month) 417
Total cost 1192
Children to be accepted
As per the above table calculation, it can be interpreted that Franks should continue to
operate its business operations from home as it will lead to cost saving. The Nanna's house should
accept upto 9 children or continue to serve 6 number of children which it was serving earlier.
Number of employees required to be hire.
As per the State regulations, each adult can supervise only three number of children at a time.
1. From home
Own House
Particulars Number
Number of
children 6

State regulation 1
supervisor for 3
children
3
Number of
supervisor to be
hire
2
If the Franks continue their business operations from home, then the total number of
children they are serving is 6. Therefore, number of supervisor required to be hired is 2.
2. From rented space
Rented Space
Particulars Number
Number of
children 14
State regulation 1
supervisor for 3
children
3
Number of
supervisor to be
hire
5
On conducting of business operations from rented space in town, then the total number of
children they can serve is 14 for which the number of supervisor required to be hired will be 5.

PART-B
1. Identifying the several elements of the management accounting systems which will help the
companies in making suitable decisions.
Management accounting systems used by Canon Copier and Apple computers such as feasibility
study, cost reliability and the improvement which helps the company in making suitable decisions
and various other benefits as follows-
Canon Copier- In the Canon copier two major components that had been developed in
relation to the management accounting is the low cost and the high reliability (Appelbaum and
et.al., 2017). For attaining the low cost objective, the firm has adopted the cost accounting system.
This system referred as the specialized accounting branch which deals in the classification,
allocation, recording of the prospective and the current cost. Cost accounting system is one of the
biggest measure that helped Canon focusing towards the inventory cost, overhead cost and the labor
cost (Di Vaio and Varriale, 2018). This enables the firm in making effective decisions that results in
cost control so that profitability increases.
For example- Canon in achieving the maximum efficiency can adopt the Economic order quantity
technique which is type of the costing tool in managing their processes and the output.
For inculcating the reliability factor within the functioning of the company, Canon had opted for the
price optimization system which is a mathematical tool that helps in determining the demand for
the product at various price level. This technique help in gaining improved profit margins and
allows the enterprise in using its prices as the powerful profit tool.
Apple computers- Apple computer also adopted the cost accounting system in order to
develop or introduce the computer at low cost. This system helps the company in determining and
classifying the cost. For instance- by categorizing the prime cost, selling cost, factory cost, direct
cost that is involved in the Apple computers (Nitzl and Chin, 2017). This helps the mangers of the
company in keeping the control over the unnecessary spending so that profits can be evaluated from
each of the activities and the processes. This in turn helps in making efficient decisions in selecting
the most suitable option that results in minimum cost and maximum profits.
Apple computer uses this tool in making the best possible decisions in setting the prices of its
product (Panadiy, 2018). It helps the company in knowing the response of its target audience
towards its prices so that changes could be made accordingly. It enables the firm in forecasting the
demands, creating the pricing and the strategies for the promotion and also in improving customer
satisfaction

2. Explaining the contribution of the management accounting towards the process of innovation.
Management accounting plays a critical role in contributing to the innovation process of the
Canon and the Apple computer as it helps in developing the social interaction between the staff
within the organization which in turn results in the creation of healthy information process (Holmes
and Rasmussen, 2018). Management accounting helps in developing highly interactive and skilled
team of the personnel that had been hired from the different backgrounds which leads to
achievement of goal efficiently. Through the management accounting, Canon had sought for
creating innovations in the existing product and it's redesigning for gaining the large market share.
Apple computer makes innovation in terms of the personal computing. For attaining success in the
invention made, management accounting is an essential era that helps in conducting the cost
analysis so that existing expenses can be determined and suggestions can be built for smooth
running of the future activities. This leads the organization in making better decisions and the
evidence based. It helps in making accurate evaluation of the cost so that cost cutting can be done
for making the innovation more profitable (Heitger and Greer, 2018). Management accounting
facilitates effective budgeting which helps in analyzing the activities and in defining the
investments that are needed to make in the innovative project. This helps in meeting any
uncertainties that could be faced by the company at the time of introducing the innovation.
Controlling and planing are also the major factors that can be efficiently made through the
management accounting. Planning for future developments and to predict the financial patterns in
the innovation process, managerial accounting is the most useful. It helps in implementation of the
task as per the set strategies so that goals can be achieved without any deviations. It provides for
taking the corrective measures while any deviations occur in the process of innovation.
For example-The top management of the Canon company was seem to be more united in
achieving the goal relating to development of MC. This helps the company in bringing the
innovation with sharing of the information among the team. This shows harmony and coordination
within the internal management of the company.
The team of the Apple computers was having the benefit of recruiting the outside talent which
helped the company in generating new vision relating to the insanely great building of the computer.
The team become so efficient that they seek for creating the reality which would result in satisfying
its vision.
3. Evaluating the four outcomes that are most useful for the management accountant within the
Australian companies.
Mainly the outcome that had been concluded from the articles are-
 It has been analyzed that some differences were present in between the model termed as