The paper "Aspects of Managerial Accounting" is a wonderful example of an assignment on finance and accounting. Relevant and irrelevant cost/revenues in “ make or buy decisions” or “ leave or buy decisions” Decision making is a very important process for every business entity which needs conscious efforts from management during this process as the effects of this process are long-lasting and therefore if not made consciously can let the company towards the closure of business activities. Before making such decision-relevant facts and figures regarding relevant costs and revenues shall be taken into consideration. The costs and revenues are considered relevant for “ make or buy decisions” and “ leave or buy decisions” .For the material: The cost of material that is relevant for these decisions is lower of the fair market value or cost of that material when the material is in the stock when it is not present in stock the relevant cost would be Fair market value of the material. For Labor: relevant cost for labor when free labor (or free hours) are available would be the wages that would be paid to them and any extra bonus for that work.
While when there are idle labor hours the cost of labor would include wages that would be paid plus contribution loss from abandoning the other project. Overheads: The cost of overheads that would be considered as relevant would include variable overheads only and fixed overheads would consider as irrelevant. Qualitative factors of the alternatives shall also be considered as selling goods of lower quality would impair the company’ s goodwill causing loss of customers. Short-run and Long-run Pricing decisions: Short term pricing decisions are made for the one time or less frequent sales options which are intended only to account for the current costs and profits that are these decisions are time bounded or contract based and profits in this kind of decisions are kept higher. Long-term pricing decisions are a decision that is made taking into consideration future relationships with the customer that is profit in this kind of decision are kept lower.
Evaluation of business performance using four perspectives of the balanced scorecard: The performance of a business entity can be evaluated by evaluating the four perspectives of the entity that is its ability to satisfy its customers and stakeholders, effective financial performance, the efficiency of its internal business processes and its ability to grow over time and remain competitive through the innovation of new technologies and items.
After evaluating these factors which creates a balanced scorecard it can be understood that how an organization is performing. Economic Order Quantity: Economic order quantity theory is a management tool for inventory level control which defines a reorder level and order quantity which would be most beneficial to the entity in terms of lowest ordering cost and maintenance cost.
That is the level where both ordering costs and maintenance costs are equal. Using different Capital Budgeting Techniques to evaluate long-term investment alternatives: Long term investment decisions are made after taking into consideration its future worth by projecting about it future cash flows and discounting it (Discounted cash flow method) at an interest rate or a capitalization rate or capitalization factor (Direct Capitalization method) or comparing it with the company’ s current EPS rate (internal rate of return method) or other methods that is payback or sensitivity analysis.
The choice among alternatives shall be made on the basis of results from these methods in order to reach a prudent and profitable decision. Return on investment using different approaches: DuPont Approach according to this of calculating return on investment is calculated as the ratio between the profit of the company and its assets that is how effectively a company uses its assets. Return on Investment= Net profit/Total AssetsResidual income approach: Residual income= Net income - capital charge (total capital* cost of equity)Economic Value method: This approach measures a company’ s worth by calculating its economic value that is its profits and costs.