Managerial Accounting Case Study and Journal Article Critique Report

This report presents a detailed analysis of a managerial accounting case study, focusing on cost concepts and decision-making within a childcare business named Nanna's House. The analysis covers variable, fixed, and semi-variable costs, relevant and irrelevant information, and different laundry service options to minimize costs. The report calculates the financial implications of employing an additional employee and assesses the profitability of expanding the business. Furthermore, the report includes a critique of a journal article discussing the application of management accounting systems in companies such as Canon Inc. and Apple Computer, Inc., highlighting the role of people, input devices, and procedures in fostering innovation and achieving business goals. The report concludes with a comprehensive overview of the case study, providing valuable insights into the practical application of managerial accounting principles.

Managerial Accounting
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Table of Contents
Introduction........................................................................................................................3
Part A: Case Study Analysis..............................................................................................4
1)....................................................................................................................................4
2)....................................................................................................................................5
3)....................................................................................................................................6
4)....................................................................................................................................8
5)....................................................................................................................................9
Part B: Journal Article Critique........................................................................................12
1...................................................................................................................................12
2...................................................................................................................................14
3...................................................................................................................................15
Conclusion.......................................................................................................................16
References.......................................................................................................................17
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Introduction
This case study deals with a business unit developed by an old couple after working for
30 years in rail board company owner Douglas age 57 and Pamela age 52. The couple
started a child care business named Nanna’s house in Oville, Taxes. In this case study
the knowledge regarding the use of different aspects of management accounting is
considered. The main theme of this case study is to find out the best option for the
business to reduce the overall cost and help the business to develop more. The case
study requires an expert advice regarding the different alternatives given which is more
suitable for the business.
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Part A: Case Study Analysis
1)
Cost
Expenses incurred by any business whether monetary or non-monetary in order to
produce or develop any product or providing any services is cost. Any conversion from
a basic raw material to sophisticated finished good requires certain amount of money
and that is to be considered as cost (Business dictionary, 2019).
Types of cost
 Variable cost
These are also called recurring cost. Variable costs are the day to day expenses borne
by the business to produce certain goods or providing a service. These costs changes
with change in the output as it increases directly with the increase in the output and vice
versa. In this case study the expenses over meal of children that is $3.20 per child per
day and laundry expenses are the perfect examples of variable cost.
 Fixed cost
Unlike variable cost fixed cost is non-recurring in nature. These costs do not vary with
change in output like variable cost. They remain constant even the production will
increase or decrease. In the given case the expenses on purchase and renovate the
house $79500 is a perfect example of fixed cost. Also the expenses on laundry machine
or dryer is fixed. These are uncontrollable in nature as any business cannot avoid these
expenses (Shaikh, S., 2019).
 Semi variable cost
Semi variable cost is the combination of both fixed and variable cost. Semi variable cost
remains fixed over a point of time or at a level of production and after that it will change
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to a higher or lower amount. In this particular case the insurance expanses by the
business that is $3480 is semi variable. As at $3480 insurance fees frank’s only
accommodate 9 children in their own house but as they move to the other house where
they accommodate 14 children the insurance expense is now increases to $5000
(Shaikh, S., 2019).
In every business different types of costs would incur. As in this particular case expense
of buying and renovating the house, laundry machine and dryer would consist of the
fixed cost. Also, the business has to incur some amount of periodic cost like licence fee
or insurance fee. And variable cost like meal expenses, laundry expenses which are
regular in nature.
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2)
Relevant information
In this case, the laundry machine and the dryer which are pretty old had stopped
working in the initial week of the business which creates a hardship to the owners as
laundry which was never a necessity for the couple now becomes a need to clean the
soiled clothes of children. The owners have to deal with the different alternatives given
in this case study. The first alternative is the nearby company which provides the
laundry and dry-cleaning services with pick-up and delivery service fir $52 per week.
The another alternative is to take the clothes to a laundromat which is just 3 miles away
once a week which charges only $8 per week excluding the detergent cost and the last
option with the owners is to buy a laundry machine and a dryer which costs $420 and
$380 respectively and having some additional cost for accessories and delivery. All this
information is relevant for the business in order to determine whether to buy the
machines or not.
Irrelevant information
In this case, there are many information which are totally irrelevant for decision making
that is whether to buy the machines or not. The cost of purchasing and renovating the
house in $79500 and its useful life of 25 years is totally irrelevant. Also, the business
has taken a licence and an insurance for $225 and $3840 respectively is totally
irrelevant. All these are sunk cost which do not play any role in future decision-making
process. These expenses are already incurred and no future decision would change
that. Also, the daily expenses incurred by the couples like meal to children and other
utilities are totally irrelevant. The area of the house, total population of the city all these
are irrelevant information as they do not play any role to choose the best alternatives.
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3)
In this case study two appliances that is laundry machine and the dryer had stopped
working in the initial week of business. These activities are much necessary for the
business to do. And for that purpose the business is evaluating the all given alternatives
is order to get the best result that is minimum cost for the month (Aver Kamp, 2019).
Option 1: launder from Red Oak laundry and dry cleaning
A nearby company Red Oak laundry and dry cleaning is ready to launder clothes for
franks at $52 per month including pickup and delivery charges, yearly calculations are
given as under: -
Particulars Working Amount per year
cost of dry cleaning including pickup
and delivery $52*12 $624
As per the option 1st, the total cost incurred by the business in laundry and dry cleaning
is $624 for the year.
Option 2: laundry from the laundromat
Another alternative with franks is to take the soiled clothes to laundromat and get the
laundry and dry cleaning of the clothes once in a week. The laundry service in this
alternative is self service and the expenses of detergents is to bear by the business
itself. Details of the expenses on yearly basis are given below: -
Particulars Working Amount per year
cost of laundry and dry cleaning 8*4.33*12 $415.68
cost of fuel note no.1 $174.58
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cost of detergent and laundry sheets 35*4 $140
total cost $730.26
(Note no 1: - cost of fuel is to be determined, total one-sided distance from house to
laundromat is 3 miles, so the total distance to be covered in a trip is 6 miles. Average
fuel charges is $0.56 per mile. Clothes have to be taken for cleaning once a week so
total fuel expenses for a week is 6*0.56 = $3.36 per week. Total cost for the year is
calculated as 3.36*4.33*12= $174.58 per year.)
As per the second option, Frank’s total cost for laundry and dry cleaning is $730.26 for a
year.
Option 3: Buy the laundry machine and the dry cleaner
The last alternative is to buy a washer and a dryer with a cost of $420 and $380
respectively. The life of the machines is considered to be 8 years and the business is
using straight line depreciation. Total cost of the machines including accessories and
delivery charges is given below
Particular Amount
Washer cost 420
Dryer cost 380
Installation cost 43.72
Delivery cost 35
Total cost $878.72
Yearly expenses for washing and dry cleaning the clothes under third alternative are
given below
Particulars Working
Amount per
year
cost of machines 878.72/8 109.84
energy used by washer - 120
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energy used by dryer - 145
total cost $374.84
From the given 3 alternatives option 3 buying new machine and dryer is most
economical. According to the calculations as per option 3 total yearly expenses in
laundry and dry cleaning the clothes is only $374.84. But as per alternative 1 and
alternative 2 the cost of cleaning the clothes are $624 and $ 730.24 respectively which
is twice as more as in option 1. So the cost of cleaning for the franks is $ 374.84 per
year.
4)
Franks can accept three more children with the help of an additional employee to whom
they have to pay $9 per hour for 40 hours in a week. Total profit from accepting these
three additional children is given below
Particulars Working
Amount per
year
Incremental revenue 800*3*12 28800
Less: cost of employee 9 *40 *4.33 *12 (18705.6)
Less: cost of meals and snacks Note no. 2 (2494.08)
Total additional profit $7600.32
Note no.2: - cost of meal and snack for one child per day is $3.20. As employee is to be
hire only for 40 hours a week and a full day is considered as of 8 hours each, we
calculated that a week is to be considered for 5 days. So, for three additional children
the additional cost of meals and snacks for the year is 3*3.20*5*4.33*12= $2494.08.
From the above calculations it is clear that the proposal is beneficial for the for the
business as they will generate a total of $ 7600.32 as additional profit for the year. So,
to employ an additional employee is beneficial for the business.
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5)
Cost per children
Particular Amount Year
Space cost 650 7800
Utility cost 125 1500
Insurance 416.6667 5000
Total 1191.667 14300
Per children 99.30 1191.6
Meals and snack 19.2 230.4
Total per children 118.50 1422.0
Employees needed
Particular Amount
Total children 14
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Handle children 3
Per working member 5
Frank Profit per children
Particular Amount
Charges from parents 800
Cost 118.5056
Profit 681.4944
Employee cost
Particular Amount
Per hour 9
per week cost 360
per month 1440
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Employee cost 4320
Profit
Particular children Amount
employee cost -4320
charges from parents 12 9600
cost of children 12 1422.067
Profit 6702.067
Per children 12 478.719
 As per the above calculations it will beneficial for the franks to move to the town and
take the house on rent as it provide them with much more profit than before. Also
they get to accept all 14 children.
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