Management Accounting: Nanna’s House Case Study Analysis - University

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This management accounting report analyzes the cost structure and decision-making processes within Nanna's House, a child care business. It identifies various cost types, including fixed, variable, sunk, and opportunity costs, and assesses their relevance to business decisions, such as purchasing new appliances and hiring additional staff. The report provides detailed calculations and recommendations on space options for the company, advising against relocating to a new premise due to cost implications. Furthermore, it examines the innovation processes of Canon and Apple, drawing lessons applicable to Australian companies. The analysis supports informed managerial decision-making to optimize performance. Desklib offers this detailed solution along with a vast library of study resources to support students.

MANAGEMENT ACCOUNTING 1
UNIVERSITY NAME
STUDENT NAME
STUDENT ID
COURSE
DATE

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MANAGEMENT ACCOUNTING 2
EXECUTIVE SUMMARY.
The objective of preparing this report is to analyze various features of management accounting
and a range of fundamentals that have impact on decisions concerning management. such
elements are different costs which include Sunk, Fixed, Opportunity and Variable costs. detailed
workings and illustrations concerning investment decisions have been calculated and analyzed in
a way that will be helpful to managers on how to make decisions which will not affect their good
performance. An example of decision used here is an advice given to frank on whether to move
to a bigger building which is in town or not. The decision is arrived at by calculating all the costs
and it emerged out that relocating to the new building is not beneficial in terms of cost.
A case study on the innovation process of Canon and Apple devices has also been outlined and
lessons learnt are also pointed out.
Table of Contents

MANAGEMENT ACCOUNTING 3
INTRODUCTION........................................................................................................................................... 4
TYPES OF COSTS..................................................................................................................................... 4
INFORMATION RELEVANT OR IRRELEVANT TO THE PURCHASE OF THE APPLIANCE..........5
RELEVANT COSTS...................................................................................................................................5
IRRELEVANT COSTS............................................................................................................................... 6
LAUNDERING COSTS..............................................................................................................................6
OPTION A: ACQUIRING NEW APPLIANCE...................................................................................... 6
OPTION B: SELF SERVICE LAUNDRY.............................................................................................. 7
OPTION C: LAUNDRY SERVICE DELIVERY...................................................................................7
DECISION ON HIRING AN ADDITIONAL EMPLOYEE....................................................................... 7
ADVICE LETTER TO FRANK ON THEIR SPACE OPTION..................................................................8
COMPONENTS OF MANAGEMENT ACCOUNTING..........................................................................11
MANAGEMENT ACCOUNTING ROLE IN INNOVATION............................................................................... 13
LESSONS TO AUSTRALIAN COMPANIES......................................................................................... 14
CONCLUSION......................................................................................................................................... 14
REFERENCES.............................................................................................................................................. 15

MANAGEMENT ACCOUNTING 4
INTRODUCTION
The various costs evident in this case are Variables Costs, Sunk Costs Opportunity Costs and
Fixed Costs. Sunk cost is the cost that has been incurred and which cannot be recovered like the
cost incurred on renovating the new building. Fixed cost is a constant expense incurred by the
company and which is not related to any business activities. Cost of insurance, license fee and
costs incurred from installations are examples of fixed costs. Opportunity costs is the best
forgone alternative for one to enjoy a given good or service. Variable Costs are those costs
related to the business activity and have impact on increase or decrease in the general output.
TYPES OF COSTS
a) Fixed Costs - costs that do not affect increase or decrease of the general output of the
business (Davies &Kristjánsdóttir, 2010, pg. 48). They include
 Insurance Cost of $3840 paid annually. The fee is constant in that it does not
change with any changes in the general output.
 License Fee. The annual cost incurred on license amounted to $225.this fee does
not change with any changes in the activities of the business.
 Utility cost amounting to $50. this is the cost incurred for having a day care. It
does not change with increase or decrease in the number of children.
 Delivery cost amounting to $35 for the transportation of the appliances. It is
constant because it does not change with change in Frank’s activities.
 The value of Dryer and Washer of $ 380 and $ 420 respectively are fixed costs.
The level of activities in Frank’s business will not affect their value.
 Installation fee of $43.72 which does not change with changes in the level of
business activities.
 Extra cost incurred on the washer totaling to $ 120 yearly. The costs are as a
result of having the machine and there it is fixed because it does not change
irrespective of a change in the number of children in the day care.
 Increase in the dryer’s utility cost amounting to $ 145(Kropf &Sauré, 2014, pg.
183.).
b) Sunk Costs.

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MANAGEMENT ACCOUNTING 5
 Renovation cost for a home at the cost of 479,500 cannot be recovered making it a
sunk cost.
 Cost of the expenses incurred in acquisition of the old machine amounting to
$440 is sunk costs (McAfee, Mialon & Mialon, 2010, pg. 330).
c) Variable costs.
 The total cost of purchases on laundry will change in regard to changes in orders
placed is estimated to be $ 35 in every quarter of supplies made.
 The change of Costs incurred on clothes laundering as a result of changes in the
number of times its done weekly estimated at $ 8.
 Monthly Cost incurred on laundry amounting to $ 52 is a variable cost because it
changes with number of times the service is utilized annually.
 $ 0.56 incurred for every mile covered will vary.
 The expenditure on snacks at the rate of $ 3.20 for every child will tend to vary
according to levels and number of registered children.
 Collections of $ 800 for the care unit which will vary according to the enrollment
number.
 The collection of $ 15 for every child who stays past the normal time will vary
according to the children who are picked late. (LaFrance &Pope, 2010, pg. 760).
d) Opportunity costs
 The time payout going to laundry has a forgone alternative.
 Opportunity cost as a result of space utilized at home for the machine (Sipiläinen
& Huhtala, 2012, pg. 444).
e) Convenience cost.
 The costs incurred for the delivery of the appliance or having the machine
operates at the current place. (McDermott & Stephens, 2010).
INFORMATION RELEVANT OR IRRELEVANT TO THE PURCHASE OF THE
APPLIANCE.
This is based on the relevance and irrelevance of options given concerning costs on whether
Frank should purchase a new appliance.

MANAGEMENT ACCOUNTING 6
RELEVANT COSTS
The relevant costs on Frank’s decision to acquire the new appliance are as follows:
 The actual cost of the appliance
 Delivery cost incurred for the transportation of the appliance to the building.
 The cost incurred for installing the appliance in the premise
 Extra cost of energy incurred as a result of the purchase of the appliance.
If at all Frank is going to consider this option to arrive at a decision of purchasing a new
machine, he will be supposed to take into account all the costs involved in this option. The cost
of cleaning and shifting of laundry service to different location is also important. (Sadeghinezhad
et al. 2014, pg. 39).
IRRELEVANT COSTS
These are costs which will not affect future decisions of the business. Such costs include sunk
costs. if Frank will acquire the new appliance, the value of the old machine will be irrelevant to
the future decision of the business (Wykowska &Schubö, 2011, pg. 650).
LAUNDERING COSTS
OPTION A: ACQUIRING NEW APPLIANCE
Annual cost of the appliance =$ 109.84
Increase in annual cost of energy = $ 265(120+145)
Detergent costs (annually) = $ 140
The Total Cost incurred after Acquiring the appliance therefore will be:
$ = (109.84 + 265 + 140)
= 514.4
W1
Washer =$ 420.
Dryer = $380.

MANAGEMENT ACCOUNTING 7
Installation fee = $ 43.72.
Delivery fee = $ 35.
TOTAL COSTS = (420 + 380 + 43.72 + 35)
$ = 878.72
The useful life of the appliance is 8 years.
OPTION B: SELF SERVICE LAUNDRY
Costs incurred on driving = $ 174.72
Cost of detergents = $ 140.
Laundering expense =$ 416.
TOTAL APPLIANCE COSTS annually will be
= (174.72 + 140 + 416)
= $ 730.72
W2.
= (6miles/week * $ 0.56/mile) =3.36/week *52 weeks= $ 174.72(driving costs)
= $ 35/quarter * 4 quarters) = $ 140.00(detergent costs)
= ($ 8.00/week * 52 weeks) = $ 416.00 (laundering costs)
OPTION C: LAUNDRY SERVICE DELIVERY
Cost incurred for pickup service =$ 52.00
Months of service = 12
TOTAL cost will be ($ 52.00 × 12 months)
= $ 624.00

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MANAGEMENT ACCOUNTING 8
DECISION ON HIRING AN ADDITIONAL EMPLOYEE
This decision will be arrived at by considering the change in costs from recruiting an extra
employee and extra cost incurred from feeding of additional children (Jain, Groenevelt & Rudi,
2010, pg. 121).
Having additional children will lead to increase in revenue. the revenue collected from addition
of 3 more children will be ($ 800 × 3children) = $ 2400 every month.
The variance in cost due to additional employee is ($ 9/hour × 40 hours weekly × 4.33
weeks/month) = $ 207.8
The cost for additional food for the extra 3 children and additional employee = $ 1766.64.
Therefore, the total income collected from additional three children is more than the expenses
incurred from recruiting an extra employee and cost of feeding the additional children .it will be
cost beneficial for Frank to add one more employee because he would have already saved $
633.36 which is a good amount.
ADVICE LETTER TO FRANK ON THEIR SPACE OPTION
ABC COMPANY,
ADDRESS: +3906675
RE: ADVICE ON SPACE OPTION.
Dear Frank, my advice on the options you raised above on whether to accept the extra three
children, rent a new space in town and recruiting an additional employee will be based on my
analysis below (Larsen & Torm, 2011, pg. 545).
OPTION A: WHETHER TO REMAIN IN CURRENT PREMISE OR NOT.
INCOME:
(6 children)
Income to be collected from 6 children = $ 4800.00
Income to be collected from 9 children = $ 7200.00

MANAGEMENT ACCOUNTING 9
EXPENSES:
(For 6 children)
Meals = 415.68
Insurance fee=320.00
Deprecation fee = 265.00
License fee = 18.75
Laundry = 42.90
Utility = 50.00.
Total expenses= $ 1112.33
NET INCOME = (4800-1112.33)
$ = 3687.67
EXPENSES
(For 9 children)
Meals = 623.52
Insurance fee=320.00
Deprecation fee = 265.00
License fee = 18.75
Laundry = 42.90
Utility = 50.00.
Total expenses= $ 2878.97
NET INCOME = (7200-2878.97)
$= 4321.03
OPTION B: RELOCATING TO A NEW PREMISE

MANAGEMENT ACCOUNTING 10
INCOME (for 6 children)
Income = $ 9600
MONTHLY EXPENSES (for 6 children)
Insurance cost =416.67
Depreciation =0.00
Laundry = 42.90
Rent cost = 650.00
Employee 3117.60
Meals = 813.36
Utilities = 125.00
TOTAL = 5202.28
NET MONTHLY INCOME = $ 4397.72
INCOME (for 9 children)
Income = $ 11200.00
MONTHLY EXPENSES (for 9 children)
Insurance cost =416.67
Depreciation =0.00
Laundry = 42.90
Rent cost = 650.00
Employee = 4676.40
Meals = 969.92
Utilities = 125.00
TOTAL = 9899.64

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MANAGEMENT ACCOUNTING 11
NET MONTHLY INCOME = $ 4300.36
W3
Income= $800 /child monthly * 6 children *1 year (12 months)
Meals= $ 3.20 /child daily * 6 children * 5 days every week *4.33 weeks’ monthly
License =$ 225 yearly ÷ 12 months= $ 18.75
Insurance=$ 5000 yearly ÷ 12 months = $ 416.67
Laundry= $ 514.84÷12= $ 42.90
Depreciation= {79500÷25} ÷12=$ 265.00
Rent=650.00
Utilities=125.00
Employee = $ 9 per hr. * 40 hours weekly * 4.33 weeks per month =$ 1558.80 every month for
an employee.
From the above computations, it’s clear that moving to a to another bigger premise in town will
instead result in decline in the monthly income. therefore, it’s my recommendation that
remaining in the current location will be cost beneficial.
Yours sincerely.
COMPONENTS OF MANAGEMENT ACCOUNTING.
planning
The management accounting aspect outlined in the Canon Company is that of planning. Canon
plans to diversify into new areas in order to keep up its expansions and this made the company to
spread into office machinery via the development of electronic calculators and copying
machines. The company initially plunged into adverse difficulties when the demand for products
declined making the company to opt from the low price market. After organization restructuring,
the company blossomed with a yearly growth of more than 20% in the last ten years of operation.
The combination and interaction of individuals with diversified technical abilities provided an
enabling environment that promoted creative tension necessary to pave way to synthesis and new

MANAGEMENT ACCOUNTING 12
information creation. The company had employed mid-career individuals to establish a
diversified group to widen the room for generating new information (Shaytura et al. 2016).
Cost control
This has been featured and clearly outline in the Canon company policies. These are strategies
that aims at production taking place at economical cost to the producing firm. Canon which had
an idea of developing a plain paper copier technology which though had been opposed by many
in the industry who insisted that Canon should go on with manufacturing business of cameras as
it has been doing initially. The small copier needed distinct features from the traditional Plain
paper copier. The copier ought to produce clear copies, which was to be lime weight and
compact (Dale &Plunkett, 2017). The MC could have been used rarely and hence the cost use in
servicing regularly could be exorbitantly high on a per copy criterion. As a result of this the
copier required no maintenance or just a simple maintenance. The initial price of maintenance
was not supposed to be more than 200,000 Japanese Yen. This is setback to the design team. A
feasibility team is then set up to scrutinize what is needed to actualize an MC.The team was
faced with a difficulty of harmonising the relationship that existed between reliability and cost
like when reliability was improved ,production cost rises, and when costs were reduced ,services
requirements rises.Mitrai ,the Managing Director named the objective "Cost Reliability"
improvement which aimed at resolving the problem by developing a new idea of how the copier
could be used .The new idea developed to cut on cost was that the entire drum was to be a
module that could be thrown away after being use to generate a number of copies. This made
possible for the company to develop a discard able photo receptor, disposable development
equipment and an instant toner-fuser within the planned cost. The relation between the drum and
the beer granted the taskforce group various approaches into the techniques of producing the
drum at a lower cost.
Decision making
This is a vital element of the management accounting which has been clearly brought out in this
two companies studied (Marques, Gourc & Lauras, 2011, pg. 1060). In the Canon Company,
when the team saw it was impossible to introduce the drum concept, The Managing Director,
Mitarai came up with the concept of relating it with beer can disposable cans and this lead to an
intensified argument discussion and this made them to adopt the decision of making disposable

MANAGEMENT ACCOUNTING 13
photo receptor, discarded development equipment and an instant toner-fuser. In the Apple
company the concept of decision making has been outlined, the interaction between the members
of the Mac lead to the development of new features and ideas. The group opted to informal
designed meetings to agree on this development hence an informed decision is reached (Gupta,
Pevzner & Seethamraju., 2010, pg. 890).
MANAGEMENT ACCOUNTING ROLE IN INNOVATION
The administration offers a strategy within which the creation is carried out. The widely
interactive product development teams comprised of individuals from distinct backgrounds and
worked in surrounding of extreme consultation (Zona, Zattoni & Minichilli, 2013, pg. 299). The
actual products to be manufactured were totally different from the two mentioned scenarios.
Canon carried out and established commodity and later prelaunch it for the vast market. Mac
made an important step forward in individual computing. The linking of the commodity
development group the host varied widely in Canon; the top executive functioned as one in order
for the innovation process to thrive. The administration in the Apple though did not function in
unison as compared to the Mac project, it was only after when the administration turns in favour
of the innovation process that the process moves on. The management were in favour of the
uniform structure with firmly outlined ranking and more ability to coordinate different parts of
the company (Suharno & Ratule, 2012). Furthermore, objectives were taken into consideration
and the taskforce was given the capability to facilitate the entire corporation. The duty of Steve
Jobs who was installed as the "product champion" was to authorised the resources to be used in
the Mac product. His important responsibility was to set the vision of the entity and later offer a
ground to the company to put these visions into a reality through commodity making. It was
during this duration when the incredible goals of the product were set and it furthers the input
from the group. In this increasingly varying economy. the all firms must create an environment
enabling new ideas and vital information to be transmitted within the whole firm. The Mac
project depicted this by its induction into Canons Research and Development wing. It needs a
much paid attention, careful and performing executive. The executive role in the entity trying to
scoop information creation should not be that of forcing the performers just like a military
training but rather arguing and involving the juniors and the performing individuals in the
process of decision making. The leader should involve them and help them resolve their

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MANAGEMENT ACCOUNTING 14
problems which will facilitate them accomplished their set goals (Brennan & Merkl, 2013, pg.
140).
LESSONS TO AUSTRALIAN COMPANIES
The most critical lesson that is learned by the Australian companies is that decision making in
organization should be involving all the key players in the sector. Decisions in large companies
should involve all the stakeholder in the entity mainly those implementing the proposals
(Fernandez, 2016, pg. 5). Decisions should not be one man's say as this may to the decision
maker ignoring the most important aspects that could be included in the policies to be dropped
and instead the least important ones be incorporated. Even if the decision making should be by
a single person he /she should carry out wide consultations before setting on a decision (Robert,
Shepherd& Sharfman, 2011, pg. 685). In organisations white decision making is bureaucratic the
role of each administration unit should be clearly outline to avoid conflict on the decision
making powers of each unit. The companies should determine the leadership style to adopt
whether democratic or dictatorial though democratic is widely accepted in many institutions.
Basing on the situation dictatorial leadership can be applied through implicit and explicit
coercion. Lastly the companies should learn that for the innovation process to succeed team work
is vital. This is so because for innovation to take place different individuals performs distinct
roles hence failure of the coordination between them fails the process (Drucker, 2014).
CONCLUSION.
Management accounting is an essential tool in managing the resources of the company in an
efficient and effective way. Determination of various costs is necessary so that the management
can know where they can cut on the expenditure or reduce wastage. Knowing the expenses
relating to some specific course of action can make the management take the necessary decision
regarding a particular issue.
Innovativeness and creativity is also an essential element for the success of any business.

MANAGEMENT ACCOUNTING 15
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