Holmes, Management Accounting Case Studies


HI5017 Managerial Accounting Individual Assignment T1 2019
Individual Assignment Specifications
This assignment aims at developing your understanding of cost concepts, and demonstrate your ability to apply your knowledge of cost concepts to a service-based company. Additionally, you are to critically evaluate a journal article to analyse the practical use of accounting information to real-life companies’ decision-making and achievement of business goals.
Assignment Structure should be as the following:
Part A: Case Study Analysis (15 Marks)
You are to answer the 5 questions relating to the case study of a child care business. It includes both theory and calculation type questions. Do show your working for the calculations.
Case Background
Douglas and Pamela Frank are a married couple. They both worked for a railroad company for 30 years. At age 57, Douglas and age 52, Pamela retired and moved to the small town of Ovilla, Texas, which has a population of approximately 3,500 residents. When the Franks moved to the town, they decided to start a child care business in their home called Nanna’s House. Nanna’s House is licensed by the state. The state charges an annual fee of $225 to maintain the license. Insurance is required at a cost of $3,840 annually. The facility is licensed to care for a maximum of six children. The Franks charge a fee of $800 per month for each child. The monthly fee is based on a full day of care, from 8:00 a.m. to 4:00 p.m. If additional time is required beyond 4:00 p.m., parents must pay an additional charge of $15 per hour for each child. The couple provides two meals and a snack for the children. The cost of the meals and snack is $3.20 per child per day. There are six children currently enrolled.
The facility is very nice. It is an 820 square foot addition to their home that was built in 1964. The Franks purchased the home and completed the renovations for $79,500 and they believe the addition has a useful life of 25 years. The facility has a large open space for play, reading, and other activities. There is a section for sleeping which contains small cots. The facility is equipped with a small kitchen, two bathrooms and a small laundry area. The daycare increased the Franks’ utility cost by $50 each month.
During the first week of operations, the washer and dryer stopped working. Both appliances were old and had been used by the couple for many years. The old appliances cost a total of $440. While a laundry room was not initially a necessity, it became increasingly important for laundering the soiled clothes of the children, blankets, and sheets. A company nearby, Red Oak Laundry and Dry Cleaning, can launder clothing for the Franks, including pick-up and delivery, for $52 per month. Alternatively, the Franks can take clothes to the laundromat once a week, which is three miles away (one way). The applicable mileage rate is $0.56/mile. They can launder the clothes themselves at a cost of $8 per week. The self-service alternative does not include detergent or fabric sheets. The couple would need to purchase these items in order to use the laundromat. Purchasing laundry supplies in bulk from MegaMart would cost $35 every quarter. The final alternative is for the Franks to purchase a washer and dryer. The cost of the appliances is: washer $420 and dryer $380. The additional accessories for both appliances, needed for installation, cost $43.72. The store will deliver the appliances at a total cost of $35. The cost of installing the appliances is free. Both appliances are expected to last 8 years. According to the manufacturer the washer will increase energy costs by $120 per year. The dryer will increase energy costs by $145 per year.
The Franks need some assistance in decision making and evaluation. They have contacted you, their accountant, to provide some advice.
Page 3 of 7
HI5017 Managerial Accounting Individual Assignment T1 2019
Respond to the following questions to help Douglas and Pamela make their decisions. (If necessary, the Franks will use straight line depreciation. For monthly calculations, use 4.33 weeks per month.)
1. Consider the different types of costs discussed in this unit. List any three (3) types of costs and provide one specific example of each cost from the case. (3 marks)
2. Based on the information provided, what information is relevant to the decision to purchase the appliances? What information is irrelevant to the decision to purchase the appliances? Why? (3 marks)
3. What could it cost the couple to launder clothes? Show your detailed calculations for each option. (3 marks)
4. The Franks have a waiting list for their day care. They can hire an employee for $9 per hour for 40 hours each week. With the additional employee, the Franks can accept three additional children. Should the Franks hire the additional employee? Show your detailed calculations. (3 marks)
5. The Franks home can accommodate a maximum of nine children. They can move the day care from their home to rented space in town, which can accommodate up to 14 children. The space will cost $650 per month and the utilities will cost $125 per month. Additionally, insurance will now cost the Franks $5,000 per year. Per state regulations, each adult can supervise no more than three children. As their accountant, prepare a letter to the Franks advising them on their space options. Should they continue to operate the facility at home or should they rent space in town? How many children should they accept? How many employees will they need to hire? Show your detailed calculations for each scenario. (3 marks)
Part B: Journal Article Critique (12 Marks)
You are to read the journal article by Nonaka and Kenney (1991), “Towards a new theory of innovation management: A case study comparing Canon, Inc. and Apple Computer, Inc.”, Journal of Engineering and Technology Management, 8, p. 67-83. The journal article is attached as a separate file in Blackboard under the folder .
Critically evaluate the role of management accounting systems and the provision of accounting information in the innovation process of these two companies by answering the 3 questions below:
1. Identify the components of the management accounting system in each of the two companies, and discuss their relevance in enabling decisions to be made efficiently and effectively. Include examples in your answer. (4 marks)
2. The article describes the innovation process in a firm as ‘a process of information creation’, and a firm needs to organise themselves ‘to transmit the new information’. Explain how management accounting contributes to this innovation process. Include in your discussion two (2) specific examples from each of the two companies mentioned in the journal article. (4 marks)
3. Provide four (4) specific outcomes or lessons learned from the article’s research findings that will be useful for management accountants in Australian companies to learn from, and justify your answer [i.e. provide 2 outcomes from each company]. (4 marks)

Sample Asnwer

Managerial Accounting
The aim of this paper is to evaluate the understanding of costing concepts as well as demonstrate evaluation of decision making in established companies. To achieve these objectives, the paper comprises of two parts. The first part evaluates the costing concepts of establishing a day care business and how they affect decision making in the company. The second part evaluates the management accounting systems in Canon Inc. and Apple. Inc. to develop learning outcomes for Australian firms.
PART A: Case Study Analysis of Douglas and Pamela Frank Day Care
Types of Costs
Fixed costs. Fixed costs are costs which do not vary with the total number of goods produced. These costs remain constant for a given period (Klychova et al., 2015, pg.308). In this case, Douglas and Pamela Frank will incur fixed costs in terms of insurance cost. The insurance costs are paid annually at the rate of $3,840. Therefore, this amount will be charged for insurance as long as the Day care continues to operate.
Variable costs. Variable costs are costs which vary with the total number of goods produced or consumed by the company. They are estimated on the total sales units of the products or services offered in a company. The cost of meals and snacks is an example of variable costs that will be incurred by Douglas and Pamela. The cost of meals is dependent on the number of children that attend the classes if there are no children, no meals and snacks will be provided. Meals are provided as per the total number of children present at the school.
Opportunity cost. Opportunity cost represents the benefit that is given up when one decision is made over the other (Mouritsen and Kreiner,2016, pg.21). The opportunity cost, in this case, involves the choice of laundry method, Douglas and Pamela will use. There is three option, and by selecting one option over the two others is likely to create an opportunity cost for the day care. The cost will be very critical in making decisions in the firm.
Relevant and Irrelevant Information in the Purchase of Appliances
Relevant information
The decision to purchase appliances is dependent on information about the soiled clothes and blankets by children as there is a need for a launder to clean them. Also, the energy costs are relevant to the purchase of the appliances since the day care needs to minimise costs rather than increasing the costs involved in the laundry. The costs of laundry supplies, laundry pickup, and delivery are essential to choosing the different laundry options that will be adopted by Douglas and Pamela. The delivery and additional installation costs are relevant since Douglas would prefer appliances which provide free installations and which do not incur any additional costs.
Irrelevant information
Information about the old cost of the appliances is irrelevant for decision making. These old costs are sunk costs, which cannot affect future decisions of the business as they have already been incurred and are historical.
Cost of laundry
Option 1: Red Oak Laundry & Dry Cleaning
Total cost per year = $52*12
= $624 per annum
The couple will incur $624 if they take to a dry cleaner as it will only involve the cost of laundry.
Option 2: Taking to the Laundromat 3 miles away
Pickup and delivery $0.5*3miles*2ways $3
Weekly charge $8
Total weekly $11
Annual charge 11*52 $572
Laundry supplies $35*4 $140
The total cost of laundry per annum $712
In this option, the cost to launder will $712 per year since pickup and delivery, weekly charges, and the cost of laundry supplies are included in the total laundry cost.
Option 3: Purchasing a washer and dryer
Item Amount
Dryer energy cost $145
Washer energy costs $120
Total cost per annum $265
The total cost for the launder of clothes will be $265 per year if Douglas and Pamela purchase a washer and dryer. They will only incur the increasing energy costs for the dryer and the washer every year.
Additional Employee
In the evaluation of differences, a contribution margin for every month is to be estimated in each case when there is an additional employee and when there is no additional employee
Without additional employee (6 Children)
Fees = $800*6
= $ 4800
Variable costs
Meals & Snacks = $3.2*5*6*4.33 weeks
= $415.68
The contribution margin without additional employee
= $4800-$415.68
= $4384.32
With Additional Employees (9 Children)
Fees = $800*9
= $7200
Variable costs
Meals & snacks = $3.2*5*9*4.33
= $623.52
Additional employee = $9*40*4.33
= $1558.80
Total variable costs = $623.52 + $1558.80
= $2182.32
Contribution margin with additional employee
= $7200- $2182.32
= $5017.68
Douglas and Pamela should accept the addition of three children in day care. An increase in the number of children leads to an increase in the total contribution margin of the day-care, even with an additional employee. The extra cost of an additional employee does not affect the total contribution margin as the cost is covered when the fees for the three children are charged.
Letter about Space options
Douglas and Pamela Frank Day Care
Ovilla, Texas.
Dear Douglas and Pamela Frank
Re: Space Options
I hereby write this letter to inform you about the space options for day care. The space options involve continuing to use the home facility and renting a space in town. The two option are evaluated as follows.
I. Renting a Space in Town
The number of children at this space will increase to fourteen children, which means additional staff will be required. The day care will be required to incur additional costs for three additional employees who will help in handling the increased number of children to 14. Also, the business will incur additional costs of insurance and utility costs at $5000 per year and $125 per month respectively. The income statement for renting the space in town is estimated as follows.
Workings Amount
Fees (14*$800) $11200
Less Variable costs
Meals & Snacks (3.2*5*4.33*14) ($969.92)
Labour (3 additional employees) (9*40*4.33*3) ($4676.4)
Contribution $5553.68
Less Fixed Costs
License Fees 225/12 ($19)
Insurance 5000/12 ($417)
Utility costs ($125)
Rent ($650)
Laundry cost 265/12 ($22)
Dryer Depreciation (380/8)/12 ($3.96)
Washer Depreciation (420/8)/12 ($4.38)
Profit $4313
II. Operating at the Home facility
In this case, the day care will operate at your residence, which will only allow for nine children at the facility. Following state regulation, only one additional employee will be required to suit the extra three children. The insurance costs incurred will remain fixed at $3840, and the utility cost is to be retained at $50 per annum. The income statement for operating at the home facility is estimated as follows.
Workings Amount
Fees (9*$800) $7200
Less Variable costs
Meals & Snacks (3.2*5*9*4.33) ($623.52)
Labour (1 additional employee) (9*40*4.33*1) ($1558.8)
Contribution $5017.68
Less Fixed costs
License Fees 225/12 ($19)
Insurance 3840/12 ($320)
Utility costs ($50)
Laundry cost 265/12 ($22)
Building Depreciation (79500/25)/12) ($265)
Dryer Depreciation (380/8)/12 ($3.96)
Washer Depreciation (420/8)/12 ($4.38)
Profit $4334
Therefore, the above analysis shows that there is a need to use the home facility. At the home facility, the day care business generates higher profits than in renting space at $4,334 and $4313 respectively. Therefore, there is a need to use the home facility, which will allow for nine children and an additional employee. Also, there will be no rental charges as well as increase insurance and utility costs for the day care business. All in all, the day care should be established at the home facility to maximise profits and minimise costs in the business.
Yours sincerely

Part B: Journal Article Critique
Components of Management Accounting System
Canon Inc.
Diversification. Canon Inc. management aimed at diversifying into other markets rather than just producing the cameras. Diversification enabled the company to venture into the innovation of Mini Copiers, which would transform the office machinery. The overreliance on the cameras had made the company suffer some losses, and there was a need to develop a new product which could be used to offset the losses from the cameras. The management, therefore, set up a new design and engineering team which would be responsible for spearheading the new product for the company. Therefore, this diversification is what led to the growth of the company by producing calculators but after the calculators down trenched is when the development of mini copiers was established to revolutionise the copier machine technology in offices into more portable machinery (Nonaka and Kenney, 1991, pg.72).
Team Work. The design and engineering teams were set up from among the employees in the organisation to spearhead the development of the Canon Mini Copier. The management provided for all the resources required as well as leadership for every team involved in the design of the Mini Copier. Also, while working in teams, the team members can share ideas which led to the development of a new product (Nonaka and Kenney, 1991, pg.73). The team is met continuously to develop a less expensive product that would revolutionise the copier machine. There were staff retreats where members of the design and development team would refresh and discuss new ways of developing the product.
Apple Inc.
Personnel management. The management system at Apple during the development of Macintosh allowed team members to self-organise themselves. Self-organisation allowed members of the same will and intellect to work together and develop a product. Members were in charge of each design proportion and were free to engage with each other in areas where there were difficulties. Therefore, this led to the optimisation of roles in the department; for example, both software and hardware teams were able to interact with each other making it easier to develop the Mac PC.
Autocratic system. The team involved in the development of the Mac Personal computers was led by Steven Jobs, who was the final decision maker. Steven jobs were the product champion for the Mac PC where all teams reported to him after progress in the design and development of the system (Nonaka and Kenney, 1991, pg.77). The product champion always wanted teams to come up with great designs since his vision was aimed at developing a revolutionary system that was to shape the personal computing market innovation. Some ideas, however better they were he rejected them, but the autocratic system led to the development of a better personal computing solution in the world.
How Management Contributes to the Innovation Process
Canon Inc.
The Japanese system aims at ensuring commitment and purpose on the part of the project by without creating a star in the team. The system works by only engaging all teams and departments in the production process so that they can develop a new product. The leaders do not disrupt the information creation process as teams are allowed to work together and develop new designs and products. In this case, every member focuses his or her attention towards information creates, which makes it easier to come up with better products. Due to this, innovations are generated internally within the organisation rather than being sourced from outside. Also, everyone is involved in product development as the leaders aim at removing selfishness, which limits the progress of an idea.
Similarly, the Japanese management system has a stable workforce which allows for the retention of workers. All projects are internally generated, which makes it easier to generate projects internally. In this case, most of the innovation is internally generated as employees establish a long relationship with the management (Nonaka and Kenney, 1991, pg.79). Therefore, due to this long term relationship, the management always encourages all its employees to develop products which are more advanced than the existing ones. For example, the Mini copier was developed to help the company to improve the financial situation due to low performing camera segment. The Japanese companies aim at retaining employees so that they would come up with innovations that bring about high growth in the firm.
Apple Inc.
Innovation process at apple is spearhead through independent teams which are given resources by the management to come up with innovative ideas. In this case, the management supports the innovation process by availing all the necessary resources as well allocating the best leaders for each innovation team, for example, the Mac development, which was headed by Steven Jobs. In this case, every innovation team retains the information they can gather, and there are restrictions on the transmission of information to other systems or departments to encourage team members to continue working on the better design or better ways of improving the design process.
Also, innovative leadership at Apple was created under one leader Steven Jobs, who was in charge of the entire Mac development. Therefore, there are product champions through which the management communicates with to ensure the progress of a design system or particular products. Steven Jobs was in charge of directing the innovative process where he would agree or refute specific designs as he wanted them to be developed in a revolutionary form that will impact the personal computing market (Nonaka and Kenney, 1991, pg.77). Also, the product is responsible for charging the management to provide resources which were essential for the critical development of new designs and systems. Moreover, the product champion is responsible for selecting the staff who work within the team, as a matter of fact; most employees were from other companies in Silicon Valley.
Lesson Outcomes
Canon Inc.
Australian firms need to learn the importance of developing strategy, which is aimed at increasing the return on investment or for increasing the profits in the firm. In this case, Canon aimed at developing a product that would correct its financial performance and address loss in the camera market. The new Mini Copiers were developed as a strategy to improve the performance of the firm as well as a way of increasing the returns on the investment in the company. The company was not deterred by failing other products but continued to develop Mini Copier that would revolutionise the market.
Moreover, Australian firms need to practice management in teams. Companies have to develop teams of different capacities who would work together to ensure the company can develop new products. At Canon, the management used a team of mechanical engineers, electrical engineers, physicists, chemists, and design engineers to develop the mini Copiers. These personnel was allowed to work together and interact with sharing ideas (Duarte Alonso and Austin, 2016, pg.314). For example, if the design team are in the same room with engineers, the engineers will transform their design into a functional system. Therefore, this shows that Australian firms have to allow teams to work on projects, and all employees have to be involved in project development.
Apple Inc.
Companies need to provide an environment for the innovation process. Due to this, it would be easier for a company to establish information creation, which would lead to the revolution of the firm. For example, in Apple, when the management provided an avenue to develop the Mac PC, all the teams that were to deal with the project were identified, and this revitalised their efforts towards developing a great product. Therefore, the innovation of the Macintosh led to information creation, which was used to transform personal computers in the world.
Also, Australian corporations and firms need to learn from the leadership outcomes that was used by Apple in the development of the Macintosh. The team developing this product was led by one leader who had a vison and aimed at selecting the best people who could lead to the realisation of the project. Therefore, Australian companies need to appoint leaders with vision and who are ready to effect change in the firms to ensure better transformation and production of suitable products. Also, leaders are always to follow action to its cause until it brings change in an organisation as well as the entire world (Ayranci, 2017, pg.171).
The paper shows the costing concepts that were utilised by Douglas and Pamela for decision making in their day care business. The paper suggests that the Franks should not rent space in town as it would lead to losses due to additional costs of employee and other fixed costs such as insurance and utility costs. In part two, management accounting systems are adequate for establishing an innovation process for information creation through personnel management, teamwork, and visionary leadership. Australian firm needs to learn how to work in teams, provision of environment for innovation, establishing the strategy, and ensuring visionary leadership. All in all, these lessons would lead to a company that ensures information creation.
Ayranci, E., 2017. Relationships between Leadership Perceptions and Attitudes towards Innovativeness: A Research in a Technopark in Istanbul. International Journal of Academic Research in Accounting, Finance and Management Sciences, 7(3), pp.171-181.
Duarte Alonso, A. and Austin, I.P., 2016. “I see the future” Associations between innovation and resources in the case of an exporting Western Australian regional family firm. Review of International Business and Strategy, 26(3), pp.314-333.
Klychova, G.S., Zakirova, A.R., Zakirov, Z.R. and Valieva, G.R., 2015. Management aspects of production cost accounting in horse breeding. Asian Social Science, 11(11), p.308.
Mouritsen, J., and Kreiner, K., 2016. Accounting, decisions, and promises. Accounting, Organizations and Society, 49, pp.21-31.
Nonaka, I. and Kenney, M., 1991. Towards a new theory of innovation management: A case study comparing Canon, Inc., and Apple Computer, Inc. Journal of Engineering and Technology Management, 8(1), pp.67-83.

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