Managerial Accounting Case Study: Frank's Child Care

Desklib provides solved assignments and past papers to help students succeed.

Managerial Accounting
1

Table of Contents
Table of Contents.............................................................................................................................2
Introduction:....................................................................................................................................3
Part A: Case Study Analysis............................................................................................................4
1)......................................................................................................................................................4
2)......................................................................................................................................................6
3)......................................................................................................................................................7
4.....................................................................................................................................................12
5.....................................................................................................................................................15
Part-B Journal Article Critique......................................................................................................18
1.....................................................................................................................................................18
2.....................................................................................................................................................20
3.....................................................................................................................................................22
Conclusion.....................................................................................................................................23
References:....................................................................................................................................24
2

Introduction:
The assignment is comprised of two parts. In this assignment, the first part deals with a case
study analysis where an examination of the child care business is discussed. The business is
owned by Douglas and Pamela Frank who are aged 57 years and 52 years respectively. Their
business is operating in the small town of Ovilla, Texas which has a small population of 3500
residents. An analysis is carried out of the cost and income from their business and suggestions
are provided to them regarding the choices to be made by them using relevant costing
techniques. The fundamental problem asked in the case is to discover the expense of the
machines as they have two alternatives for fulfilling their business requirements. Hence, this part
is concerned with the topics of operating costing and relevant costing. The second part of the file
discusses the importance of management accounting system in the business organization which
is based on the study of a Journal article provided in the project. It shows the important features
of management accounting applied in the businesses of Apple computers and Canon ltd. to
develop an understanding of the subject matter.
3

Part A: Case Study Analysis
1)
Cost
Costing is the most important element in the study of managerial accounting. The calculations of
the cost of the product, Price determination of the product, profit of the product and business
entity everything is based on the principles of costing. Budgets and strategies are prepared on the
basis of different costs determined by the cost accountants of the business. Cost is calculated for
both the goods and services based on the nature of business operated by the organization.
Types of costs:
 Variable cost
Variable cost is those cost which remains the same in the per unit calculations but changes with
the change in the production level of the firm. These costs are calculated by multiplying the per
unit cost with the total number of units produced in the firm (Hirth, and Ziegenhagen, 2015).
Variable costs are directly deductible from the sales price of the product or services. In the given
case, the cost of meal and snacks is provided which is $ 3.20 per child per day. This is an
example of variable cost; it will remain constant for a child per day but with the increase in the
number of children in the child care center, it will also increase.
Fixed cost
Fixed cost is a type of cost which remains fixed in total but changes in per unit calculations.
Fixed cost isused for the purpose of calculating the actual profits of the business. This cost is
incurred even at the zero productivity level of the firm (Du, et. al., 2014). These costs are
considered irrelevant or sunk in the purpose of making an additional decision as this cost is
already incurred by the organization irrespective of the production or sales. Here, in the given
case study the amount of insurance cost at the rate of $ 3480 annually is an example of fixed cost
as it is not depended upon the number of children in the child care center and is fixed irrespective
of the business operations of the firm.
4

Semi-variable cost:
A semi-variable cost is the mixture of features of fixed cost and variable cost. This type of cost
remains fixed at a particular level and with the increase of productivity beyond that level
additional cost is charged. So, basically it is fixed at a particular level and changes with the
change in production beyond a certain level (Rasmus, et. al., 2015). For example, in the given
case the state charged an annual license fee of $ 225 to maintain the license of child care services
business is a semi-variable cost. Because this amount will be charged by the state irrespective of
operating of the business for maintaining the license of their services but provides the licensed
facility up to the child care of maximum six children. In case the owners want to expand their
services beyond six children they have to obtain additional permission for another six children.
5

2)
Relevant information:
The case study given in the question has provided all the relevant information which is essential
to calculate the required data and for decision making of the business. The information regarding
all the types of cost which is license fees, insurance cost, meal cost, maintenance cost, utility
cost, charges per child by the care and other are the crucial information required for the
calculation of budgeted profit estimates of the business.The information about the opportunity
costs of different matters such as employee hiring and laundry matters also forms an important
part of the assignment. The additional cost on the equipment used and the useful life of those
additions are given to calculate the depreciation amount to be charged for estimating actual
profits to the firm. All theseinformationare necessary to provide the Franks suggestions and
remarks about their business.
Irrelevant information:
This assignment also contains some irrelevant information which may be useful in understanding
the history of the business but doesn’t form a part of the costing decision to be made in the
project. These irrelevant data in this file includes; the information about the past jobs of the
owners and the reason behind their decision for entering into the child care service industry, the
original purchase price of the equipment which are about to extinct and are of no use to the
business, the information about the structure and area of the property as no depreciation is
charged on the land property. These are some irrelevant information in the case study which is
not useful for any decision making and calculation of the business.
6

3)
The two options available with Frank’s business are laundering of clothes and purchase of
washer and dryer.
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)
7

From Frank carrying 13.44
Launders cost 32
Detergent 11.66
Total 57.1
Amount of 8 years 5481.6
As per the calculations, the second option is preferable to the business of Franks as it has 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
8

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
9

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
10

Per month 12.08333
Eight years cost 1160
The second appliance is purchasing of washer and dryer, the cost of washer and dryer is 2999.72,
as per the calculation the Frank’s has got less cost as compared to the 1st appliance is working
with the Launder. From purchasing the inventory, it will gate the minimum cost. But it takes the
fund in one time.
11

4.
Cost of maintaining each child in the child care center:
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
The cost per child is calculated using all the expenses including that of insurance and state
license charges.
Frank’s profitstatement:
Frank Profit per children
Particular Amount
12