Abc Assignment Help

HI5017 Case Study Analysis on Types of Cost using Some Case Laws Assessment Answer

Assessment Details and Submission Guidelines
Trimester
T1 2019
Unit Code
HI5017
Unit Title
Managerial Accounting
Assessment Type
Individual Assignment
Assessment Title
Management Accounting Case Studies
Purpose of the assessment (with ULO Mapping)
Students are required to develop their understanding of cost concepts, and demonstrate their ability to apply their knowledge of cost concepts to a service-based company. Additionally, students 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 (ULO 1, 5, 6, 7, and 8)
Weight
30% of the total assessments
Total Marks
30
Word limit
Not more than 3,000 words. Please use “word count” and include in assignment.
Submission Guidelines
  • All work must be submitted on Blackboard by the due date along with a completed Assignment Cover Page.
  • The assignment must be in MS Word format, no spacing, 12-pt Arial font and 2 cm margins on all four sides of your page with appropriate section headings and page numbers.
  • Reference sources must be cited in the text of the report, and listed appropriately at the end in a reference list using Harvard referencing style.
  • It is the responsibility of the student who is submitting the work, to ensure that the work is in fact her/his own work. Incorporating another’s work or ideas into one’s own work without appropriate acknowledgement is an academic offence. Students should submit all assignments for plagiarism checking on Blackboard before final
submission in the subject. For further details, please refer to the Unit Outline and Student Handbook.

Purpose:

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.


Required:

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 <Assignment>.

Required:

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)

Answer

Case Study Analysis

Introduction

The report has comprised the study of various types of cost with the help of some case laws. It is required for every company to reduce the fixed, variable and other costs to strengthen the return on its capital employed. Initially, the various kinds of costs have been elaborated in the report. With the help of given case studies, the role of these costs has been described. After analyzing the role and effect of different costs, the importance and applicability of management accounting system have been analyzed. The report is entirely focused on different types of costs which are usually occurred in any business and the impacts of types of costing methods on the return in business.  

Part A: Case Study Analysis

1. Type of costing and examples 

There are several costs has been discussed such as fixed cost, variable cost and other costs which are supported by the given practical example.  

ParticularDescription of these fixed with the given examples
Fixed cost 

A cost incurred in business is considered as fixed cost if it does not change with the change in production volume. In the given case the annual licensing fee and annual insurance are considered as a fixed cost because their value does not change with the change in the level of production. The fixed cost remains constant in every year (Horngren, et al. 2012).
Fixed cost/Incremental 

Incremental fixed cost is a part of fixed cost which enhances eventually once in a year. In the case given in the report, the cost related to the energy related to washer and dryer is considered as an incremental fixed cost. The incremental fixed cost does not increase with the change in the level of production but increases gradually once in a year or two years.  
Variable costs The nature of variable cost is not constant. The variable cost changes with the change in the production volume of business. Various factors involved in business environment affect the level of variable cost in every financial year. Here in the given case, the laundry cost is an example of variable cost which changes with the monthly use of laundry service. Also, the cost of mileage incurred will be changed on the basis of total mileage driven (Horngren, et al. 2012).

2. Detailed information to make the decision to buy an appliance? What information is irrelevant to the decision to purchase the appliances? Why? 

Here in the given case, the Frank couple has several options to continue their business. The impact of the adoption of every option is different. If the couple would decide to adopt the option of purchasing the appliances for laundry then it would affect the several relevant costs involved in the business and these costs play a significant role in decision making. All these costs are the following:  

  1. Initial costing incurred to buy a new appliance 
  2. Newly incurred delivery charges for the delivery of the selected appliance.
  3. Initial costing for the installation of the new appliance. 
  4. The cost incurred for the utility of the appliance.  

On the other hand, if the Frank couple will go for other alternative options of getting the clothes clean by Red Oak Laundry then the costs which will be relevant in decision making are the laundry charges, pick-up, and delivery charges. The other alternative available for the Frank couple is the option of self-service. If they will go for such an option then the mileage cost incurred while traveling from and to the laundry provider's place will be considered as relevant for decision making. There are several costs involved in the business which are considered to be irrelevant in decision making i.e. the cost of appliances which already existed, pick-up and delivery and the cost of detergent, etc (Maskell, Baggaley, and Grasso, 2016).


Also, there are some opportunity costs are involved which comprises some significant values. These costs are not expressly determined in the case of Frank couple but these costs can be indirectly considered while making the decision. The time spent in traveling from and to Laundromat is an example of such cost in business (Alcalde, and Guerrero, 2016).

3. Cost the couple to launder clothe and detailed calculations for each option. 

The below-given table is being used to assess the different alternatives available for the selection.  

1. Purchase for the newly considered appliance

Details are given for appliance  $ amount
Chemical costing for the appliance 
(120.00+145.00)
265.00
Depreciation charged by using the straight-line method  
Washer         420.00 
Dryer            380.00 
Installation   43.72 
Delivery       35.00 
The total cost of the appliance to the business                                $878.72.  
Life expectancy of the appliance                                             8 years 
Charged depreciation annually                             = $878.72/8 = 109.84 
109.84.

Annual costing for the detergent140.00
Annual total costing 514.84 


2. Alternative-2 Self-service

The self-service laundry cost has been computed as below. 



$
Driving cost for the self-service 6 miles a week*.56 per mile *52 weeks 174.72
Laundry cost for the self-service 

8 per week * total 52 weeks = 416.00416.00
Cost incurred for the detergent $35 per quarter *4 =  140.00 

140.00
Total cost for the self-service
730.72

3.  Alternative-3 delivery laundry costing

There is below estimation of the delivery laundry service cost has been given.  

ParticularDetail computation Amount in $
Pick up costing 52 per month *12624.00
The total cost incurred for the laundry costing annually 
624.00


  • The cost of the appliance would be annually and would be incurred for the purchasing cost of the material and rental amount for the places is $514.84.
  • The total cost which would be incurred for the purchasing the appalling for starting up a business of self-laundry is $730.72. 
  • The total cost which would be incurred for the purchasing the appalling for starting up a business of delivery of the services is $624.00 (Kranz, Hanelt, and Kolbe, 2016).

Analysis

 The best cost appliance which will lower down the business costing and increase the overall return on capital employed will be selected by the company. 

4. Should the Franks hire the additional employee? Show your detailed calculations. 

This involves incremental analysis. If the additional employee is hired then they can take 3 more children. 

Details Computed amountTotal cost or amount
Increased output with the increase of the additional 3 employees in the process3*$800$2400
Less:

Additional employees cost$9.00 / hour * 40 hrs* 4.33 wks $1558.80
Food cost$3.20*3*5*4.33
207.84 

Increment total cost
$1,766.64
Contribution of the business 
$633.36

 

Interpretation

Frank would have an increment in his revenue to $ 2400 when he add additional employees costing to $ 1766.64. 

With the increasing additional employees, the additional profit would be $ 633.36. 

However, with the incremental costing, Frank could easily generate an additional profit of $ 633.36 amount. 

Therefore, it could be inferred that additional employees in the process will increase the overall profit of the business. 

5. Option to accept rental option and remain in current option. Computation of the employees to have in process, and the number of served children 

Remain in the current Location 

The costing and contribution computation when the company has 6 children and 9 children in its business process.  

Particular 6 children 9 children 
Revenue  (@ 800 per child)48007200
Less: Expenses 

Meals cost
($3.20 per child*5 days a week* no of child* 4.33 weeks)
415.68623.52
License costs 
($225.00/12)
18.7518.75
Insurance costs 
(5,000/12)
416.67416.67
Cost of laundry ( alternative 1) 
(514.64/12)
42.9042.90
Depreciation Expenses 
($79,500/25 years) = $3,180.00/12 = $265.00 
265.00265.00
Utilities expenses 50.0050.00
Rent expenses 0.000.00
Employee costs 0.001,558.80
Total costs 

Net income 3,687.674,321.03


Analysis and interpretation 

Profit of Frank would be $3,687.67 only when 6 children are taken into consideration to serve. This will give an increase in the profit of 12%.

The revenue of Frank would be increased to $2400 when the additional employees are being hired in the process $1,766.64. 

Therefore the profit earning capacity of work would be $633.36. 

Results 

  • Frank needs to have more employees to increase its profit.  
  • In order to have a process serving 9 children, two additional employees would be required.  
  • It is analyzed that additional costing of the two employees would be $1,766.64 and it will ultimately increase the profit by $2400.

Option B: Move to a larger facility 

In this option effect to move to a larger facility option has been given below.  


Particular In the case of 12 Children In the case of 14 children 
Revenue  (@ 800 per child)9,60011,200
Less: Expenses 

Meals cost
($3.20 per child*5 days a week* no of child* 4.33 weeks)
831.36969.92
License costs 
($225.00/12)
18.7518.75
Insurance costs 
(5,000/12)
416.67416.67
Cost of laundry ( alternative 1) 
(514.64/12)
42.9042.90
Depreciation Expenses 0.000.00
Utilities expenses 125.00125.00
Rent expenses 650.00650.00
Employee costs 
($9/hour x 40 hours/week x 4.33 weeks/month=1,558.80*2 and *3)
3,117.60 4,676.40 
Total costs 5,202.286,899.64
Net income 4,397.72 4,300.36



If 12 children are accepted in process total costing would be $4,397.72.

If 14 children are accepted then in this case profit will go down by $4,300.36.  

Therefore, Frank should go for adding only 2 additional employees and serve only 12 children if he wants to maintain optimum profit in his business (Joseph, Varghese,  and Sebastian, 2016).


Second case

It is analyzed that keeping 12 children in the process will require the hiring of one additional employee and profit will be $ 4800. 

Additional costing for the same will be $1,766.64*2. 

If 9 children are kept in the process then total turnover would be $ 7200 and profit would be $4,321.03.

In the case of 12 children, total revenue would be $ 9600 and profit would be $4,397.72 which is the optimum amount.   

Additional cost $ 650 if 12 children are kept in the process.  

If 14 children are served then additional costing would be higher than the profit earned. Therefore, 12 children option should also be selected (Eaton, Kortum, Neiman,  and Romalis, 2016).


Part B: Journal Article Critique 

1. 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. 

Management accounting system is popular as a tool of decision making, planning and performance process and of formulation and implementation of strategy in a business unit. The system helps to make decision in favor of business after analyzing the data from existing business. In the given case Canon and Apple have followed the management accounting system which has three major components which are as follows (Bozikova, and Hanak, 2018).

Risk Management System 

The risk management system assists the businessman to manage the risk involved in the business. Every organization is doing business to earn a better return from its resources employed in business but every return has some risk involved in it. To avoid or mitigate such risk involved in the business, the risk management system is used. The system helps to mitigate the risk to enhance the operational efficiency of the business and to easily achieve the goal of business. The primary objective of such system is to identify the risk involved in existing business and to collect the more relevant data for analyzing the risk factor. After collecting and analyzing the data, the management finds remedies to mitigate or avoid the risk. In the case given the step of identification is followed while identifying the issue in drums old machine (Vladisavljević, and Vukasović, 2017)

Performance Management system 

The system of performance management plays an important role in management accounting system. The system provides assistance in evaluating the real performance of business and in its comparison with estimated performance. The system enables the company’s management to examine the designed structure for achieving the goal and to remove the deficiency out of the structure to prevent the worst performance of the business of company in near future. The market declined the performance of canon due to which the requirement of its new substitute was needed in the market. The small offices had a high demand for similar product on lower prices on which they can afford the product but the similar technology at low cost was not available. The management of company had tried to establish a new technology which can work in more effective manner. The company was planning from future perspective which can work for decades. Such point of view of management of canon depicts their long-run vision to establish a new performance system (Rahma Dewi, 2018).

Strategic management  system 

One more significant and major component which represents the management accounting system is the Strategic management system. In such a system the company prepares a strategy for taking all crucial decisions under business. The strategy is made by the management after the proper study of past trends and technologies of business. The strategic decision making helps the company to develop the business for the long run. The innovation of low-cost computers by Apple was a famous example of management's working to achieve the vision. This could be possible only by making high level of commitment by management of the company and their strong strategic management system (Maskell, Baggaley, and Grasso, 2016).

2. The article describes the innovation process in a firm as ‘a process of information creation’, and a firm needs to organize themselves ‘to transmit the new information’. Explain how management accounting contributes to this innovation process. 

Innovation is ultimately the result of the process of information creation which can be done by great social interaction. A great social interaction process helps to create information. The contribution of management accounting system in the innovation procedure can be elaborated in following manner (Dale, and Plunkett, 2017).

  • It helps to collect the data relevant to the existing processes, products and technologies etc.
  • It also assists to find out the issues regarding 
  • It also helps the management to identify the issues which help them to solve the issues on time 
  • It helps the management to recognize the trends which suggest them to have some new ideas for interaction
  • It assists the management to proceed further the idea or thought suggested by social interaction (Kaplan, and Atkinson, 2015).

The social interaction provides the ideas or information to management of the company but for further proceeding or execution of such idea, the management is needed to evaluate the cost and expenses relevant to the idea (Heikal, Khaddafi, and Ummah, 2014).

                Hence the contribution of management accounting system is required from generation of idea or technology to the final execution of such idea or innovation. The participation of management accounting system is needed for the proper execution of the process of innovation (Lakis, and Masiulevičius, 2017).

3 Found 4 lessons learned from the article and useful for management accountants in Australian companies to learn from, and justify your answer [i.e. provide 2 outcomes from each company.

The results emerged from the research are as follows:

  1. Various Japanese existing firms are there before the Silicon Valley Revolution. These firms were well established and already had a better product line. The staff working there was also familiar with the working pattern and technologies engaged in the firms. All these firms required some new technologies, ideas and innovations to continue their business for a further period and for obtaining better profits. A business which is running without any new technologies and ideas has no sense. The above-given example of the canon was the example that shows that business in chaos can also be continued as a profitable business by introducing new ideas and technologies in the business which promises for more better product than the existing. The source of social interaction was used by the Canon to find the new ideas and technologies (Lopez-Valeiras, Gomez-Conde, and Naranjo-Gil, 2015).
  2. The main objective behind introducing such process is to set up the situation where the common people can participate to provide new ideas and technologies for the upcoming product. The people can provide better ideas to develop the new product in comparison to the existing product. An idea can emerge from any argument or it can be the combination of several ideas. While performing the task of social interaction, the management team of company shall consider the point that the company has the capacity to convert the idea into reality. If the new idea or technology is the result of several ideas then there should be proper coordination between the entire management team of the company (Loughran, and McDonald, 2016)
  3. The analysis of the report also reflects the issues chased by the management leaders in the condition of chaos (Maas, Schaltegger, and Crutzen, 2016). In the condition where the management has the responsibility to develop a new product or technology, the management leaders should behave as a system catalyst. To perform in an autocratic manner is nor favorable for the management team if they are under the pressure to introduce new product in the market. Also the management of company should be more effective in decision-making process. As the situation provided under the case of Canon, the management should have proper knowledge of the situation to overcome from the crucial conditions (Maskell, Baggaley, and Grasso, 2016).
  4. In the current business environment, companies are required to form several groups for taking part in the function of social interaction. By this the company can get the better and new ideas and technologies for the development of new products. To meet the requirement of rapidly changing competitive edge, the management of companies should be more self-organized as it helps them to make the effective and emergent interactions (Noreen, Brewer , and Garrison, 2014).  

Conclusion 

The entire analysis of the report states that the total cost involved in the business of any organization is the result or combination of various kinds of costs. All these costs have a different impact on the business. Also, it has been discussed that a new emerging project needs a full evaluation of existing data and past trends of the relevant business. Such analysis helps the individual to avoid the pre-found issues and problems so that the project will perform profitably. The report also reflected the role of social interaction in the emergence of new technologies and ideas to develop new products in the business of an organization.   

Customer Testimonials