Analysis of Costs and Profitability at Nanna's House Childcare

Desklib provides past papers and solved assignments for students. This report analyzes Nanna's House Childcare's financial decisions.

Managerial accounting
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Table of Contents
Part A............................................................................................................................... 3
Q1.................................................................................................................................... 3
Q2.................................................................................................................................... 5
Q3.................................................................................................................................... 6
Q4.................................................................................................................................. 10
Q5.................................................................................................................................. 13
Part B............................................................................................................................. 16
Q1.................................................................................................................................. 16
Q2.................................................................................................................................. 17
Q3.................................................................................................................................. 18
References.....................................................................................................................19
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Part A
Douglas and Pamela Frank are a married couple, the age of Douglas are 57, and
Pamela is 52, they are working in Railroad Company for 30 years. After working, they
had moved to the Ovilla, Texas, and they decided to start the child care business in
their home called Nanna’s House.
Q1
Cost as per unit
Different types of cost incurred in this case study such as for starting the business the
first cost is to get the license for that business from the state, and the cost is $225. The
second cost is incurred in the business is insurance of the business, land the cost of
insurance is $3840. In the first week of operations, the washer and dryer have not
worked in the house, the Frank is having two options for doing the work of cloths of the
children, blankets, and sheets to washed from the laundering, and another option is to
purchase the washer and dryer.
Cost
Cost is the value or worth of the money is taken into used for making the product or
services. The cost is also called the acquisition, the money is expended to acquire the
thing is calculated as a cost. To determine the cost then only it gates the profit for the
business, and it will make the selling price of the product.
Types of cost
Fixed and variable cost
Fixed cost and variable cost is the type of cost. Fixed cost does not vary, whereas
variable varies. Sometimes, fixed cost is also called overhead cost, fixed cost remains
constant in the production and they are having changes in output (Pettinger, 2017).
Variable cost changes when the business mic changes to the output.
Direct and indirect cost
Direct cost is similar to the variable costing and this includes direct labor, direct material,
and all variable costs. The indirect cost is similar to the fixed cost, and this includes the
salaries of the employees, indirect labor, factory rent, and tool expenses.
Cost of capital
Cost of capital is also the cost of business, the capital is decided in the forms of the
business clarification to spend in the operations. Cost of capital is having the important
cost for the working capital policies.
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As per the case, the most problem to decide the cost of the washer and dryer is willing
to purchase from the cost of capital is can affordable for the business. In this case,
onecost is the cost of capital. There is also another cost is having in the business is
fixed cost is the license cost of the business is fixed cost.
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Q2
Relevant information
In the case, the information for the decision appliances is there is having that in the first
week of the operations, the washer and dryer is not working. As per the financial
condition, there is having two options, the first option is to launder the soiled clothes of
the children, blankets, and sheets from the laundry and the laundry is far from the
house, the 3 miles away there is having many costs for laundering. Another alternative
is to purchase the washer and dryer, from purchasing the washer and dryer the cost will
increase, and this will solve the problem permanently (Shaikh, 2019). The Frank has to
take the decision from two options from the effective manner and calculate all cost from
all the parts, and take the corrective actions for the business.
Irrelevant information
In this case, as per the decision appliances, there is having irrelevant information to
take effective decision in the case. The irrelevant information, it is having a good facility,
and it is a square foot addition to their home that was built in 1965. The Frank has
purchased the home and completed renovations for $79500. They believe that they will
fulfill a useful life for the next 25 years. In the house, there is having a large open place
to play, reading, or other activities for the children. There is also having the section of
sleeping which contains small cots. The facility is equipped with a small kitchen, two
bathrooms, and a small laundry area.
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Q3.
Alternative First
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
In the value of first option they get the cost of 8 years is 9183.36. In the first alternative
there is having two options when the Frank is gets value of one is 9183 and 5481
because there is having changes in the pick and delivery of the cloths. In the second
option, the Frank is doing the work of cloth delivery and the laundry shop is far from the
house the area of laundry is 3 miles away.
Landers Cost
Per week 8
Weeks in month 4
Month calculation 32
Detergent cost
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Per quarter 35
Months in quarter 3
Months calculation 11.66667
Option 2 Amount (Per month)
From Frank carrying 13.44
Launders cost 32
Detergent 11.66
Total 57.1
Amount of 8 years 5481.6
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
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Alternative Second
Particular Amount
Washer cost 420
Dryer cost 380
installation cost 43.72
delivery cost 35
installing appliances -
Washer energy cost 960
Dryer energy cost 1160
Total cost 2998.72
Washer energy cost
Per year 120
Months 12
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Per month 10
8 years cost 960
Dryer energy cost
Per year 145
Months 12
Per month 12.08333
8 years cost 1160
As per the case study, the value of the profit is making with the two options. In this given
case study, there is having two options and the business has to choose the one option
which is better for the business. The business has to choose second alternative for
getting the minimum cost for the appliances and it is use for the future use. The
business chosen the second alternative then they will gate the large profit for earning
the maximum profit.
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Q4.
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
Frank Profit per children
Particular Amount
Charges from parents 800
Cost 162.125
Profit 637.875
Employee cost
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Particular Amount
Per hour 9
per week cost 360
per month 1440
The business will earn when they will hire the employee
Effects upon profit
Particular children Amount
employee cost -1440
Extra children charges from parents 3 2400
cost of children -162.125
Profit 797.875
Per children 265.9583
The annual profit of all the children
Comparison as per children and employee
Particular children Amount
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employee cost -1440
Extra children charges from parents 9 7200
cost of children 9 -1459.13
Profit 4300.875
Per children 477.875
As per hiring the new employee then they can understand the result of the profit from
the business, it is showing the calculations for maintaining the children behavior. In the
position of current thing business is working with the 6 children, and they are earning
the profit 637.875 per children. The business will hire the employee then the business
will be expanded and they can take care the 9 children and reach of the children will
give the profit of 265.95 to minimising the cost of children and employee cost then it will
give the profit to the business.
As per the calculation, the business has to hire the employee to expand the business,
and it will give return to the business.
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