Financial Management or to be precise strategic financial management has an enormous scope that is not limited to management of financial resources of a company. It includes how the management of finances in such a way that it leads to a successful venture for the company to attain goals, objectives and maximize the shareholder's value over a period of time (Makrygiannakis and Jack, 2016). In this assignment, strategic financial management and decision-making process regarding continuing the business of childcare services for the Franks have been highlighted in the first part of the case study. On the second part of the assignment, a critical analysis of the journal article on Canon Inc and Apple Inc have been done in terms of deciding over the innovative techniques to be implemented within their operational business process.
Cost is defined as the cash value or amount equivalent to cash that a company has to give away to procure an asset or produce goods and services. Cost is the amount of sacrifice that an organisation makes for a particular commodity. Cost is the major expenses that a company incurs and is deducted from the total revenue earned to determine the value of profit. There are various types of costs that are maintained within the periphery of cost and management accounting. The various types of costs are fixed cost, the variable cost, and incremental cost and sunk cost. Douglas and Pamela Frank have also incurred these costs in their childcare business established in Texas.
Fixed costs are the costing expenses incurred by the company and remain fixed up to a certain volume of production. As stated by Järvenpää and Länsiluoto (2016), the type of cost that does not change with changes in the volume of production or revenue is known the fixed cost. It remains fixed without any changes in the volume of production out. Variable cost is the expenses that are proportional to the level of production output. In other words, the variable cost increases with an increase in production and decreases with a fall of total volume output. Costs that vary with modification in the revenue is known to be variable cost (Otley, 2016).Sunk cost is also known as the stranded cost is the cost expenses that have been incurred by the company and cannot be changed, recovered or avoided. As mentioned by Nielsen et al. (2015), sunk cost once paid cannot be brought back into the business nor be reduced. It has no role in the decision-making process nor has to bear a future implication on the business. The incremental cost is the net difference between the total cost incurred by the company due to changes in company activities. It is also known as differential costs that have relevance in making the short-term decision for the company that requires critical analysis among alternatives (Quattrone, 2016).
The information that is relevant to Franks in taking a decision on purchasing the appliances is total cost of appliances, the installation cost for setting up the new appliance for the childcare home, the excess cost to be incurred for utilities, delivery and shipping cost for new appliances. This information is only relevant to Franks when all other alternatives such as self-service and delivery services then significant changes are to be seen in the cost associated and likely to be incurred by Franks in connection to other options. Therefore, in this case, the relevant information is pickup and delivery charges for the cost of laundry services, cost incurred for self-service laundry that consists of the cost of detergent, laundering and mileage cost. This information is important sources for decision-making process on purchasing the appliances.
The irrelevant pieces of information for Franks for the decision-making process are the expense associated with sunk cost in the childcare business. As mentioned before that sunk cost is expenses that cannot be recovered by the organisation in the long run. Expenses related to sunk cost does not make any kind of difference in choosing the most suitable options that are purchased, self-service or pick-up and delivery for the Franks in laundering the clothes for the childcare business. Thus the cost incurred by Franks for old appliances and the cost of detergent is the irrelevant source of information to Franks in the decision-making process.
Annual cost of the appliance = Washer + Dryer + Installation + Delivery
= $ 420 + $ 380 + $ 43.72 + $ 35 = $ 878.72
Driving expenses per week = 6 miles per week * $ 0.56 per mile = $ 3.36
Driving expenses per year = $ 3.36 * 52 weeks = $ 174.72
Monthly cost for pickup and delivery services of clothes = $ 52
Total annual cost for delivery of laundry services of clothes = $ 52 * 12 months = $624