Managerial Accounting

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.)

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)
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)
What could it cost the couple to launder clothes? Show your detailed calculations for each option. (3
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)
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:
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)
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)
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)