HI5017 Identification of Business Costing and Business Decision Assessment Answer
With the changes in the economic condition, each and every organization needs to bifurcate its business costing. However, absorption of the costing is required in the different department to assess the production cost and marginal utility of the increased business outputs. In this report, case study analysis has been made to assess the different work costing which require to assess the changes in the business production output. After that, in the next part of the report, the marginal utility and increased variable costing have been assessed with the increment in the business costing. In the case study analysis, different business costing and type of business decisions have been assessed to identify which business decision will give more utility in the business process. In the end, components of the managerial accounting system have been made to assess the business changes.
Part A: Analysis of case
The below give are the example of several costs which to be incurred by company in its process.
Fixed cost: - The license fees is fixed cost. It does not change with the changes in production. Fixed cost is at $225 in a year (Banerjee, 2016).
Other fixed costs: - Annual insurance fee is considered as the illustration of fixed cost. Fixed cost does not change even when the volume of production changes. Fixed cost is identified at $3840 in a year
Fixed cost/Incremental: - it rises with the changes in time and does not change with the production unit. This cost is one time and increases annually not on a regular basis. This type of cost falls in the category of incremental fixed cost.
Variable costs: - Variable cost is fluctuating as it changes according to the changes in the number of products manufactured. This cost changes per unit. There is an increase in the cost of laundry services, which is fixed at $52 per month and it increased on the basis of the month. The final cost depends on monthly usage and this is known as a variable cost.
Relevant decisions based on the information availed while purchasing the appliances and irrelevant to the decision of appliances purchase and why?
The cost that is related to decision making are given below-
The below cost that is relevant and basis of Frank's decision regarding the purchase of long term appliance-
- Initial cost required to purchase appliances
- The cost required for the delivery of appliances
- Cost of appliance installation
- Use of appliance utilities lead to cost
Before making the purchase decision, Frank will evaluate several alternatives before taking the purchase decision (Bhimani, 2012).
The cost of laundry picking service and its relation to delivery should be included. These cost are accompanied with the mileage cost and service charges for laundry. While observing this case, the following costs will be identified that has no relevance to the issue while making the correct decision-
- Expenses of operating appliances
- When franks choose to opt for alternatives of delivery and its related pickup in which cost of detergent is not relevance.
Many alternate costs have not been addressed here. For instance- the cost of spending time (as time is money) in the laundry house and its related time needed to drive to the laundry house. Such cost is known as opportunity cost which is important while taking the decision but they would not invest the same time in other useful valuable activity (Drury, 2006).
Estimated cost the couple would pay to launder the clothes and calculation for every option.
There are several factors which are used to assess particular business decisions. However, in this case, there are several examinations of each alternative as determined given below-
Purchasing of Machine (alternative-1)
|Details of the option||Amount given in $|
|Annual charge (120.00+145.00)||$ 265.00|
Washer detail 420.00
Dryer Cost 380.00
Installation cost incurred 43.72
Cost of delivery made 35.00
Annual total cost for the appliance 878.72.
Depreciation = $878.72/8 = 109.84
|Annual cost||$ 140.00|
|Total cost||$ 514.84|
Self-Service Laundry (Alternative-2)
In the scenario of laundry through self-service according to cost estimated below-
|Particular||Computation of the costing||$|
|Self-Service||6 miles a week*.56 per mile *52 weeks||$ 174.72|
|8 per week * total 52 weeks = 416.00||$ 416.00|
|Cost incurred for detergent|
$35 per quarter *4 = 140.00
|Total amounting to cost||$ 730.72|
Laundry Service (Delivery undertaken)
There has been made the proper estimation of the cost of delivery and selecting the laundry service as-
|Particular||Multiplied data||Amount given in $|
|Cost of pickup of laundry and its delivery||52 per month *12||624.00|
|Total annual costing for the pick-up||-||624.00|
The above table is related to purchasing of the appliance where annual cost and its application is predicted as $514.84. The total cost is $730.72. Cost of service delivery and an annual cost of picking is projected at $624. This concludes that buying an appliance would be lowest (Drury, 2010).
Computation of additional costing for hiring employees
This table includes incremental analysis. It there is a condition where additional employees are hired then the more feasible idea would be adding three more children-
|Details are given||Amount multiplied||Total Amount|
|Incremental revenue by adding more 3 children in the process||3*$800||$2400|
|Cost of the additional employee||$9.00 / hour * 40 hrs* 4.33 weeks||$1558.80|
|Cost of food||$3.20*3*5*4.33|
|Total incremental cost||$1,766.64|
|Incremental contribution (profit)||$633.36|
From the above table, it is estimated that Frank has the scope of generating incremental revenue that is equal to $2400. Further, if additional employees are employed then the estimation associated with this cost can be $1766.64. After calculating and adjusting the incremental cost, Frank can have more profits of $633.36. The advisor will advise employing more employees then it will lead to an increase in profitability for frank (Horngren, 2014).
Continue to facilitate the operation at home or they should take a rental space in the town and employees to be hired? Provide the appropriate calculations-
Operate in the current location
This possibility will avail services to six or nine children by pooling their operation to a large extent
|Particular||When there are 6 children||When there are 9 children|
|Revenue (@ 800 per child)||4800||7200|
|Deducting the expenses incurred||-||-|
($3.20 per child*5 days a week* no of child* 4.33 weeks)
Cost of laundry ( alternative 1)
($79,500/25 years) = $3,180.00/12 = $265.00
|Total net income earned in the process||3,687.67||4,321.03|
(Horngren, Datar, & Rajan, 2015).
The profit would be $3887.67 and it would increase by $633.36 to $4321.03 if 9 children are accepted in process. It is quite probable that Frank can generate the revenue marked as $2400. On the other hand, additional employees are employed then the incremental cost would be same and frank will be able to generate $633.36. After making adjustments, Frank will earn $ $633 but it will increase the profits and frank will be advised to opt this.
Whereas in order to have 9 children, Frank will be able to hire one more employees and this employee will generate $2400 with the associated cost of $1766.64 (Kaplan, & Atkinson, 2015).
Therefore, it could be inferred that Frank should continue with the business option to serve only 12 children by adding one more employee which will help him to increase its overall marginal utility and business output. Adding more children in its business process will require more employees costing which will be a loss to its business and result in higher business costing.
Part-B Journal Article Critique
1. Parts of the management accounting and discussion over the relevancy enabling decision making.
Management accounting will include collecting data of the current business, examining the same and following up to create the decision that can suit to make the decision by employing appropriate manpower and business services in a sustainable manner. (Chenhall, & Moers, 2015). These different management accounting are used to assess the business return on capital employed. Finding issues included in drums of machines are relevant to finding the risks that can disrupt the organization and can cost higher in the long run when choosing cannon. Many organizations require being self-managed. Self-handling requirements are very high especially in their interactions, that would emerge, and they are able to develop certain new interpretations from certain situations
System of risk management
It will practically lead framework development, management of risks, gauging, where there is potential to decrease the operational efficiency and predetermine the goals.
Finding the possible disruptions in the business system of existing is one of the main components of the management accounting system. As soon as it finds the possible disruptions, it is possible to collect greater data pertaining to the mentioned risks. These management accounting are used to assess the business outcomes. Finding issues included in drums of machines are relevant to finding the risks that can disrupt the organization and can cost higher in the long run when choosing cannon (Otley, 2016).
Managing performance in a system
This is an inherent part of the overall (MAS) management accounting system which will further help in the examination of actual performance. This reflects making an effective comparative analysis of the present performance of the organization and to what extent it has extended pre-determined goals or there is a lack of proper performance. It will further allow the organizational manager to signify the structural deficiencies present in the organization system. It will allow to the demise of the efficient mitigation process (Lopez-Valeiras, Gomez-Conde, & Naranjo-Gil, 2015).
It is observed that canon`s performance had declined in the 1970s so that it could bring new in the market from counter growing threats to Xerox. This situation tells of facing and bringing valuable small offices and cheaper. It was hard to find an alternative technology that is available to the impact. This has shown that management was expecting performance and finally tried new to the market, which has not arrived before in the form of mini copiers. The canon was committed to fulfilling the long term visions while creating new performance system (Bedford, 2015).
Managing the system strategically
This 3rd component is a strategic system that leads to the preparation of such a blueprint that can make tactical decisions and lead to the enhancement of business through the quantitative and qualitative aspect of benchmarking to ensure that new launch in the market has been benefiting the business. The main job of is a create a deeper understanding of technology and current trends that lead to the creation of decisions, which will affect the business in the long run and it is difficult to imitate (Hopper., & Bui, 2016).
The instance of Apple when it undertook the projection and development of low costing mac computers straightforwardly lead to achieve the vision and certainly fetch low-cost computers to people. High level of team and management commitment has led to the success of Apple rather than only responding to the strategic vision for success. This achievement has resulted from engaged team members in the development and design procedure (Schaltegger, Etxeberria, & Ortas,2017).
2. Innovation process in firm and new way of process for the transformation of information in process. How management accounting is useful in that?
Innovation is an instance of the end result but at the same time it underwent a process of social interaction that has resulted in the development of new data. Innovation and improved social interaction have led to the development of new ideas. In the process of analysis where management accounting leads to innovation-
It collects information in regards to enhancing the current processes, products, and services while identifying the problems (Lopez-Valeiras, et al. 2016).
Management accounting helps the management in early finding is problems that may early alert the management team and start elaborating several issues that further might crop up and lead to disruptions.
Data presented in the reports allow the management accounting system including the economic and industry trends to initiate interactions and at the same time meaningful ideas.
Ideas that are developed by interactive procedure require (MAS) management accounting system so that it can be valued in terms of costs and decision leading with help of inputs such as cost, ideas, and decision (Zhao, Huang, & Shepherd, 2016).
MAS (management accounting system) assist in idea generation by settling and implementing innovation procedures without engaging management accounting. It is the deep collaborating of new benchmarks and the development of new technology would not be accomplished without management accounting.
As per the case study of canon and apple, it demonstrates the development of new products and redesigning of products that proves innovation strategy. It is seen that management accounting has a huge role at every step (Jayaraman, 2016).
3. Four useful illustration helpful in management accounting in the identified Australian company?
Some of the special outcomes after researching on these cases are summed up as-
- Before the revolution of Silicon Valley, Japanese organizations already existed with good profitability conditions with existing product line. Workforce employed by the organizations was formalized. In order to growth rapidly with these organizations need to improve, bring new technology, and renovate on constant basis. . The management of the social process is needed to identify the chaos that cant further take the precedence and its organization management that must have integrate abilities in order to convert those ideas in reality This requirement of renewed interest in regards to the innovation procedure and its new ideas were allocated by the preferences as analyzing them when it does not make sense or make worth. The instance of canon has showed that there is a huge chaos which can turn into beneficial if it actually aims to argue for the final decision as per the better idea (Alavipour, & Arditi, 2018). The analysis of the article made in this report has also revealed that the organization is under the pressure and it has to strengthen its business process by adding value to its business process. There is a need to set up a strong value chain which will help company to add overall business output
- Companies need to enhance and create their interactions powerful by sessions to share their ideas. Many organizations require being self-managed. Self-handling requirements are very high especially in their interactions, that would emerge, and they are able to develop certain new interpretations from certain situations.
- There is a need to develop core understanding with the diversified business changes if company wants to sustain in the market in long run (Gu, Lu, & Ma, 2016).
- This includes setting up of environment which people can participate that can lead to a precursor for the betterment of the ideas. The management of the social process is needed to identify the chaos that cant further take the precedence and its organization management that must have integrate abilities in order to convert those ideas in reality. Organizations will have to work in developing and executing those ideas into reality.
- The recent research highlights the position as acquired by leaders in problematic situations. Organization’s management is between huge pressures so that it could bring down the costs and other new processes have been introduced. In an organization, a leader must not work under pressure for the changing and managing exact situation otherwise it will come up with deep slumber as per the case study of Canon (Peng, Ding, & Yu, 2016).
- In the case study given, canon and apple, both had development of new products and redesigning of products that proves innovation strategy. It is seen that management accounting has a huge impact on the increased business outcomes and strengthen the overall business process ineffective manner (Braglia, Frosolini, Gallo, & Marrazzini, 2019).
After assessing the different report and case study, it has been assessed that there is a need to make the proper changes in the business before accepting the particular option. It is analyzed that if company wants to increase its overall business profit then it needs to understand the point at which it will have maximum utility in its business. In the given case, it is found that only by adding 12 children, Company will have maximum output and if the same children number is increased then company will start to increase its business costing and there will be a reduction in the overall profit. The analysis of the article made in this report has also revealed that the organization is under the pressure and it has to strengthen its business process by adding value to its business process. There is a need to set up a strong value chain which will help company to add overall business output. It is analyzed that company should focus on reducing its business costing by reaching the certain limit at which it could have its maximum profit by deploying its available resources.