Cost accounting and decision making

Concept of Cost and Managerial Decision Making

The internal rate of return also called the time-adjusted rate of return is a close cousin to NPV. Managers must be mindful of the impacts of decisions on production capacity, customers, employees, and other qualitative factors.

By reducing this cost, cost accounting is helpful to increase the return on investment. As a student, you can probably think of many things you wish you could do over. It will be spent regardless of the decision. In computing NPV, notice that the focus is on cash flows, not "income.

One must be clear about the problem. A future expense that is already obligated is not a consideration. Both financial and non-financial data are used in the reports.

An example could be a coffee roaster, which after receiving a large order of beans from a far-away locale, has to pay a higher rate for both shipping, packaging, and processing. The following graphic confirms this conclusion: This method tended to slightly distort the resulting unit cost, but in mass-production industries that made one product line, and where the fixed costs were relatively low, the distortion was very minor.

If a division is sold-off, head-office will still exist and the office rent shall be incurred. If the available tables are not sufficiently detailed, some interpolation would be needed.

Lunker Lures has been approached by Walleye Pro Fishing World to produce a special run of 1, units. Similarly, future costs and benefits that are identical across all decision alternatives are not relevant.

The Flying Pigs Roller Skate Company has been asked by a big-box retailer to make a special model of skates for their stores. The unavoidable costs from the golf department are assumed to be shifted equally to the other departments although other allocations methods could be used, the overall conclusions would not change.

These types of decisions involve considerable risk because they usually involve large amounts of money and extended durations of time. Historical costs are costs incurred in the past. Company-wide quality certification fee is irrelevant because it shall continue to be incurred even if dental care division is no longer there.

Non cash flow costs are costs which do not involve the flow of cash, for example, depreciation and notional costs. Importance of cost accounting to business concerns Rabi Gupta Advertisements: The "period" might be years, quarters, months, etc.

Cost Accounting Information – Its Effectiveness in Price Determination

It is used by airline pilots, mariners, and others. Suppose, a piece of land has already been purchased by a company for a sum of Rs.

Do not assume that analytical methods can be used to solve all business problems, but do not abandon them in favor of wild guess work!

In the context of capital budgeting, assume two alternative investments have the same upfront cost. Pilot Corporation produces software for handheld global positioning systems.

Importance of Costing in Managerial Decision Making

From a humble beginning business, the company has grow to become a prodominant bottler of non-alcoholic beverages in Nigeria, responsible for the manufacture and sales of over 33 different coca-cola brands.

Semi-variable costs are partly fixed and partly variable. One of the more difficult decisions management must make is when to abandon a business unit that is performing poorly. The annual depreciation charge on furniture and fixtures reflects a cost allocation of expenditures made in prior years.Decision making is the process of evaluating two or more alternatives leading to a final choice known as alternative choice decisions.

Relevant Costing and short-term decisions

Decision making is closely associated with planning for the future and is directed towards a specific objective or goal.

cost that will be incurred in the future and will differ between and among the decision maker's options - costs that have not been incurred but that would be the same whichever option is chosen is not relevant. Cost information is valuable in decision-making process to ensure the achievement of a production, an activity with a reasonable cost by eliminating waste and.

5 Relevant information for decision making •Relevant information relates to the future and varies among alternative courses of action.

Make-or-Buy Decision

– Relevant revenues are expected future revenues. – Relevant costs are expected future costs. 6 Relevant and irrelevant cost items (1) •Fixed costs are costs that will remain unchanged irrespective of the changes in the.

Cost And Management Accounting Decision Making

cost accounting, operations research, statistics, economics etc. Decision-making: Management accounting supplies analytical information regarding Accounting for Managerial Decisions Page 8 The following table shows the main points of distinction between the two: Sl.

No. This lecture is from Managerial Accounting. Key important points are: Relevant Cost for Decision Making, Split-Off Point, Joint Products, Pitfalls of Allocation, Sell and Process Further, Activity-Based Costing, Decision.

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Cost accounting and decision making
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