Consider the given case study and answer the questions based on principles of managerial accounting systems with different types of costing.
HI5017
In organization, there are several cost incurred to operate the business effectively. However, below are the following type of costing given as below (Biondi, Gulluscio, Rossi, A., and D'Alessio, 2017).
Fixed cost: - This is related to the annual licensing fees charged on the business. It is fixed and does not change with the changes in the production unit. The annual cost is $ 225 for the given year.
Incremental fixed cost- This is the cost which is kept fixed but changes with the changes in time and does not vary with the changes in the time. The incremental cost is related to $ 120 which was incurred for the washer.
Variable cost: - This cost incurred on the production unit and vary accordingly. However, this cost changes with the changes in the production unit. This could related to the changes in the rate of the mileage which will be changed with the changes in the total derived unit in process (Biondi, Gulluscio, Rossi, A., and D'Alessio, 2017).
It is analyzed that there are following cost information which are used to assess the decision making related to buying the appliance. However, cost related to investment, return on capital employed and other factors are considered for the same.
It is found that each and every alternative will have different total cost and operating cost. For instance, self-delivery option will be having higher self-drive cost related to the time and expenses incurred on the petrol (Chenhall, and Moers, 2015).
Irrelevant information
In the given scenario, there are several information which are considered irrelevant for the selection of the particular option, such as cost related to the existing appliance, cost incurred for the detergent and other delivery alternative cost. The qualitative intents of the last appliance will be irrelevant to opt for the new option.
| Particular | Detailed computation | $ |
| Incremental annual energy cost | 120+145 | 265 |
| Depreciation SLM | Charged depreciation Depreciation cot of the appliance (SLM) Washer 420.00 Dryer 380.00 Installation 43.72 Delivery 35.00 Total cost (related to appliance) 878.72. Life term of the appliance 8 years Annual depreciation charge = $878.72/8 = 109.84 | 109.84 |
| Detergent cost | Annually | 140 |
| Total Cost annual | $514.84 |
Computation of the self-Delivery service laundry (Given alternative-2)
| Particular | Costing $ |
| Self-service driving (6 miles a week*.56 per mile *52 weeks) | 174.72 |
| Cloths laundering cost (8 per week * total 52 weeks = 416.00) | 416 |
| Detergent cost ($35 per quarter *4 = 140.00) | 140 |
| Total cost | 730 |
The estimation of the delivery laundry service in altenative-3 is given as below.
| Particular | Detailed | $ |
| Cost of pickup and delivery charges | 52 per month *12 | 624.00 |
| Total cost | 624.00 |
The total cost of the appliance to be incurred in the process would be $514.84,
The total operating cost to be charged in the process would be $730.72.
The total pickup and delivery cost for the appliance to be incurred in the process $624.00.
Therefore, it is inferred that the option incurring low cost is selected by Frank.
It reveals the incremental analysis related to the hiring of the employees if more children are kept in process.
| Particular | Detailed computation | Amount |
| Revenue increased | 3*$800 | $2400 |
| Reduced by | ||
| Additional employee costing | $9.00 / hour * 40 hrs* 4.33 wks | $1558.80 |
| Food cost | $3.20*3*5*4.33 | 207.84 |
| INCREMENTAL Cost | $1,766.64 | |
| Contribution | $633.36 |
It is found that Frank would be able to generate incremental revenue of $ 2400 when the additional employees are taken.
The incremental cost of hiring employees would be $1,766.64.
Therefore, additional profit would be $633.36.
Decision
Therefore, it is inferred that Frank should hire additional employees as it will increase the overall profit.
This shows the costing of the 6 children and 9 children to be served by Frank in his process.
| Particular | 6 children | 9 children |
| Revenue (@ 800 per child) | 4800 | 7200 |
| Less: Expenses | ||
Meals cost ($3.20 per child*5 days a week* no of child* 4.33 weeks) | 415.68 | 623.52 |
License costs ($225.00/12) | 18.75 | 18.75 |
Insurance costs (5,000/12) | 416.67 | 416.67 |
Cost of laundry ( alternative 1) (514.64/12) | 42.90 | 42.90 |
Depreciation Expenses ($79,500/25 years) = $3,180.00/12 = $265.00 | 265.00 | 265.00 |
| Utilities expenses | 50.00 | 50.00 |
| Rent expenses | 0.00 | 0.00 |
| Employee costs | 0.00 | 1,558.80 |
| Total costs | ||
| Net income | 3,687.67 | 4,321.03 |
If 6 children are accepted then profit would be $3,687.67
Incremental revenue generated by Frank would be $2400 if additional employees are hired.
Costing of additional employees would be $1,766.64.
If the additional employees are hired then the profit would be $633.36.
Therefore, Frank should accept the offer of hiring additional employees.
If 9 children are served then additional employee costing $ 1766 would be incurred and I will result to profit of $2400
This option include serving higher number of children by taking the big place.
| Particular | 12 children | 14 children |
| Revenue (@ 800 per child) | 9,600 | 11,200 |
| Less: Expenses | ||
Meals cost ($3.20 per child*5 days a week* no of child* 4.33 weeks) | 831.36 | 969.92 |
License costs ($225.00/12) | 18.75 | 18.75 |
Insurance costs (5,000/12) | 416.67 | 416.67 |
Cost of laundry ( alternative 1) (514.64/12) | 42.90 | 42.90 |
| Depreciation Expenses | 0.00 | 0.00 |
| Utilities expenses | 125.00 | 125.00 |
| Rent expenses | 650.00 | 650.00 |
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 | 5,202.28 | 6,899.64 |
| Net income | 4,397.72 | 4,300.36 |
It is found that if 12 children are served then profit would be $ 4397.
If children are kept 14 then profit will reduced to $4,300.36.
Therefore, it is inferred that only 12 children should be served by Frank if he wants to have higher profit (Collis, and Hussey, 2017).
Management accounting includes the provision and preparation of information related to statics and finance to the managers of the business. This includes the internal systems that are used by an organization to evaluate and measure the management process. This is not regulated by the law and helps in internal decision making. Both non-monetary and monetary information is included in management accounting. This information will help the managers to take managerial decisions. Periodic reports are the result of managerial accounting. These reports are confidential and internally used by business managers. These reports help the company to run the company in a more efficient manner. The management accounting system helps the management to plan business activities. It is also helpful in overcoming the constraints at an early stage and avoid loss. The management accounting process aids to tackle the direction, planning, controlling and decision making. In Apple and Canon, the management accounting system includes three components (Curry, Hersinger, and Nilsson, 2019).
It includes the set of practices that help the organization to improve the performance. In management accounting system, performance management plays an important role. This is helpful in the periodical assessment of the performance. This analysis helps the organization to determine whether the performance is able to achieve the business goals or the performance is lagging somewhere. It helps the managers to identify any presented deficits in the system. This helps to improve the performance of the organization, employee retention and overcome the communication barriers. It reduces conflicts and saves time. It offers self-assessment opportunities to the employees (Gibassier, and Schaltegger, 2015).
Due to the declining performance of the Canon in the early 1970s, it is necessary to bring new things and ideas. This help the company to counter the risks from Xerox. This also helps the company to face the situation of providing a cheap and valuable solution for small offices. This presented that in canon, management leaders were committed to achieving long term visioning goal by developing a new performance system (Hopper, and Bui, 2016).
A risk management system helps the organization to identify, assess and control the threats. The risk management system includes plans, strategies, policies, and processes to reduce harm. The basic risk management plan includes identification of risk, analysis of the risk, evaluation or ranking of the risk, treatment of the risk, monitoring the risk. This helps the organization to achieve goals and objectives. Risks can reduce the efficiency of operations.it helps to determine ownership and accountability. It reduces the liability possibilities. It helps to improve business performance and reduces operational losses (Jamil, Mohamed, Muhammad, and Ali, 2015).
In management accounting system, identification of risks and threats is the basic step which is further followed by the collecting and analyzing data at a larger extent. Timely identification and analysis of data help the management of the company to determine what can affect the progress of the company. This help the organization to identify and manage the alternate resources.in the case of Canon Company, issue identification is related to the risk identification that can result to harm or can be enormously expensive for the Canon (Järvinen, 2016).
This component of the management accounting system is helpful to create a blueprint. This blueprint helps to improve the quantitative and qualitative aspects by making technical decisions. This delivers a framework for decision making. This system is a collection of the processes and ongoing activities that can be used by the organization for the alignment of the resource with the business goals. The strategic management system is responsible to study the latest and existing technologies and trends in the market to provide a long-term benefit to the organization.
The success of less costly Mac computers by Apple is an example of the strategic vision of the company. The company worked to achieve the visionary goal. This also showed the high commitment of the team members in the process of development and design (Laudon, and Laudon, 2016).
As an end result of the process of social interaction, an innovation created new information in the given example. The innovation process refers to the translation of new or existing ideas into marketable solutions. Innovation cannot be possible to achieve without proper social interaction. By the analysis of the following information, management accounting helps in the process of innovation (Maas, Schaltegger, and Crutzen, 2016).
The outcomes of this research are given is below:
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