9/6/2018

NANNA’S HOUSE
Case Analysis

ABALUS, Darry Gold L.

DOMINGO, Lourd Gil G.
REGLOS, Carlo Joseph S.
MARIANO, Kaylla B.
VALDEZ, Kathleen L.
REQUIREMENTS:

1. COSTS PRESENTED IN THE CASE

FIXED COSTS
License Cost $ 225.00
Insurance Expense 3,840.00
Depreciation- Land Improvement 3,180.00
Utility Cost 600.00
TOTAL 7,845.00

VARIABLE COSTS
Food
Cost ($3.2 x 7days x 4.33 weeks x 12 months)
1,163.90
x No. of Child 6.00
Total 6,983.40

2. RELEVANT AND IRRELEVANT COSTS

FIXED COSTS QUALIFICATION

License Cost $ 225.00 420.00
Insurance Expense 3,840.00 380.00
Depreciation- Land Improvement
3,180.00 43.72
Utility Cost 600.00 35.00
TOTAL 7,845.00 878.72
8 years
VARIABLE COSTS 109.84 Relevant
This are Relevant Costs
Food
because these are
Cost ($3.2 x 7days x 4.331,163.90
weeks x 12 months)
expected future costs
x No. of Child 6.00 1,169.90 Relevant
that differ under
Total 6,983.40 140.00 Relevant
decision alternatives.
Total Cost 1,419.74

FIXED COSTS
License Cost $ 225.00 Irrelevant
Insurance Expense 3,840.00 Irrelevant
Depreciation- Land Improvement
3,180.00 Irrelevant
Utility Cost 600.00 Irrelevant
TOTAL 7,845.00 The following costs are
expected to be incurred
regardless of the
VARIABLE COSTS
alternatives.
Food
Cost ($3.2 x 7days x 4.331,163.90
weeks x 12 months)
x No. of Child 6.00
Total 6,983.40 Irrelevant

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 3. COST TO LAUNDER SOILED CLOTHES

A. Outsourcing laundering services from Red Oak

Cost ($52 x 12 months) $624.00

B. Laundering by themselves (self-service) on laundromat

Laundering Cost ($8 X 4.33 weeks x 12 mos.) 415.68

Cost of Transportation ($.56/mile x 6 miles x 4.33wks x 12) 174.59
Supplies Expense (Detergents) $35 x 4 quarters 140.00
TOTAL 730.27

C: Purchase Washer & Dryer

Washer 420.00
Dryer 380.00
Installation Cost 43.72
Delivery Cost 35.00
Total Cost 878.72
/ Useful Life 8 years
Annual Depreciation Cost 109.84
Utility Expense
Washer 120
Dryer 145 265.00
Supplies Expense (Detergents) 140.00
Total Cost 514.84

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 4. Improvement

Payback Period: Net Investment/ Annual Cash Inflow

Payback Period= 79500/57600= 1.38 years

*Cash Flow= ($800 x 6 children x 12 months) = $57,600.00

The time required to recoup the investment is a good measure of the success of
the company. Using the net cash inflows as the net return, and using measurement
of liquidity, a shorter period of time to recoup the investment shows a greater
probability for success of the company.

5. CASE STUDY REPORT

To: Mr. & Mrs. Douglas Frank

Owner, Nanna’s House

Ovilla, TX

CASE STUDY ANALYSIS AND REPORT

A. INTRODUCTION

The Nanna’s House is a childcare business owned by Douglas and

Pamela Frank. It’s facility is equipped with small kitchen, 2 bathrooms and small

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laundry area. During the 1st week of operations, the washer and dryer stopped
working.

B. VIEWPOINT: Emily Smith-accountant

C. TIME CONTEXT: 1st week of operations

D. PROBLEM STATEMENT

How can Nanna’s house minimize the cause of laundering for the succeeding
years of operations? Through outsourcing, self-service or purchasing?

E. OBJECTIVE

To choose the alternative which will render the least expected future costs as
possible.

F. AREAS OF CONSIDERATION

1. Differential Cost Analysis- this is a method to analyze each alternative

choice looking into consideration the differences or changes in the revenues
and costs.

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 2. SWOT Analysis

•The Nanna's House can •The washer and the

launder the clothes by dryer stopped working (
themselves (Line No. 25) Line No. 18)

STRENGTHS WEAKNESSES

OPPORTUNITIES THREATS

•Red Oak offerered • None

Nanna's House a laundry
service ( Line No. 22)
•To purchase new
Washer and Dryer (Line
No. 28)

G. ASSUMPTIONS: The detergent cost (supplies expense) will be incurred

regardless of purchasing the washer & the dryer or self-service laundering.

H. ALTERNATIVE COURSES OF ACTION

ACA 1: To outsource laundering service from Red Oak

ACA 2: To do laundering by themselves (self-service)

ACA 3: To purchase Washer & Dryer

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 I. ANALYSIS

ACA 1: To outsource laundering service from Red Oak

Cost ($52 x 12 months) $624.00

Advantage Disadvantage
• Time for laundering is saved and • Additional cost will be incurred
can be used for other activities in
the operations

ACA 2: To do laundering by themselves (self-service) on laundromat

Laundering Cost ($8 X 4.33 weeks x 12 mos.) 415.68

Cost of Transportation ($.56/mile x 6 miles x 4.33wks x 12) 174.59

Supplies Expense (Detergents) $35 x 4 quarters 140.00

TOTAL 730.27

Advantage Disadvantage
• The utility cost (energy costs) • Additional time is needed for
will be saved laundering the soiled
clothes(time-consuming)
• Additional transportation cost

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 ACA 3: To purchase Washer & Dryer

Washer 420.00
Dryer 380.00
Installation Cost 43.72
Delivery Cost 35.00
Total Cost 878.72
/ Useful Life 8 years
Annual Depreciation Cost 109.84
Utility Expense
Washer 120
Dryer 145 265.00
Supplies Expense (Detergents) 140.00
Total Cost 514.84

Advantage Disadvantage
• The laundering is shifted from • Costly
manual to automatic
✓ Time saver
✓ Less effort

J: SUMMARY OF ANALYSIS

ALTERNATIVE COURSE OF ACTION TOTAL COST

ACA 1: OUTSOURCING: RED OAK 624.00
ACA 2: SELF-SERVICE 730.27
ACA 3: PURCHASING 514.84

K. DECISION MATRIX

CATEGORY ACA1 ACA2 ACA3

Effectiveness 4 3 7
Efficiency 7 5 3
Easy to Implement 7 3 6
Cost 4 2 7
TOTAL 22 13 23
*7 being the highest

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 L. RECOMMENDATION AND CONCLUSION

In view of the decision matrix above, it is thereby recommended that

ACA 3 (To purchase Washer & Dryer) would be best suited to address
the issue in the case. It is the most cost-effective among the give 3
alternatives and is effective and easy to implement.

6. HIRE OR NOT?

Incremental Revenue (3 children x $800 x 12 months) 28.800.00

Incremental Costs

Salaries ($9 x 40 hours x 4.33 weeks x 12 months) (18,705.60)

License ($37.5 x 3) ( 112.50)

Cost of Meals ( 3 children x $3.20 x 363.72days) ( 3,491.71)

Incremental Profit $ 6,490.19

Conclusion: Nanna’s house should hire additional employee to maximize

profit.

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7. A. Home-based or Rent?

HOME-BASED RENT
REVENUE 86,400.00 134,400.00
Less: Expenses
Salaries Expense 18,705.60 56,116.80
Rent Expense - 7,800.00
Utilities Expense 600.00 1,500.00
License Fee 337.50 525.00
Insurance Expense 3,840.00 5,000.00
Depreciation 3,180.00 -
Cost of Meals 10,475.14 37,138.24 16,294.66 87,236.46
PROFIT 49,261.76 47,163.54

Nanna’s House shall remain to be a home-based childcare organization.

It will result to higher profit as compare to renting facility outside the home
boundaries.

B. How many children should they accept? And how many employees to hire?

HOME-BASED (with
one employee) without employee
REVENUE 86,400.00 57,600.00
Less: Expenses
Salaries Expense 18,705.60 -
Utilities Expense 600.00 600.00
License Fee 337.50 225.00
Insurance Expense 3,840.00 3,840.00
Depreciation 3,180.00 3,180.00
Cost of Meals 10,475.14 37,138.24 6,983.43 14,828.43
PROFIT 49,261.76 42,771.57

Nanna’s House should hire 1 employee to accommodate additional 3

children to maximize the capacity available and to maximize its profit.

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