Managerial Accounting Assignment On Decision Making Approaches
Task: Discuss the concept of decision making approaches of managerial accounting.
All business operations and decision as discussed in this Managerial Accounting assignment on decision making approaches require to be closely observed and each aspect linked to transaction monitored to ensure their viability and profitability. In many situation business owners will quickly accept projects extensions and expansion without taking in to account the delicate aspects of accounting. To understand the complexity linked Managerial accounting decision making, the scenario on page 287 of “Accounting in a Nutshell” must be reviewed. The scenario described a business which receives a sudden order increment. The sudden order inclement is also time-bound meaning the business must consider working overtime and several added expenses to complete the order on time (Toms, 2010).
For many business people, the order increment will be observed as a blessing in despise but is important for the order increments viability to be performed. To perform the project or order financials viability it’s important to use accounting decision-making models which will help calculate the project’s cost which will also help deliver the net profitability. It’s important to make sure the order profitability remains the same or even higher due to the order being extra and urgent thus needing extra effort which increases the production costs (Lord & Westoby, 2012).
The accounting manager needs to perform a product profitability model which would take into consideration the product production cost as well as the price being paid for the products. In the case scenario, the company has already been issued with an order to perform 12000 tests but the client increases the bunker by 50% to 18,000 resulting in the company needing to add an extra shift to help complete the test on time. This increases the cost of each test considerably due to certain extra costs such as overtime, increase test supply costs, transportation and increased manpower requirements.
All extra expenses and costs must be added to the total test cost to determine the final cost of the extra costs. It’s also important for the order issuer to be charged an extra order urgency price which will have considered all the extra cost and still deliver the desired profits.
Failing to evaluate and make the required calculation linked to the extra costs incurred with urgent orders can lead to a company experiencing serious losses with urgent order increments. This is due to many lacking to take aspect liked the extra manpower, overtime and extra materials supply costs. This makes it critical to consider all the extra expenses and avoid making rash decisions which could result in clouding your reasoning. It’s important to always give the decision a day or two while you consult the accounting manager to perform the profitability model test to determine the true cost of the order increment (Balakrishnan, Bartov, & Faurel, 2010).
It’s also very important to involve other company professional and managers to the order acceptant decision as it helps bring together insight which would help reduce the risks associated with the new order increment. Any discrepancies require to be addressed and solutions linked to them provided. This information would then be used to make a fresh order proposal which would address the changes and price increments which required to be accepted before the order can be accepted. Urgent Order Increment on short timelines is a common strategy used by certain businesses to tactically reduce cost without needing to ask for discounts making it important to evaluate every order before acceptance.
It’s also possible to make use of several accounting and profit colocation tools and websites available but this does not reduce the risk associated with the orders. This is due to the business owner needing to retain their accounting strategies and approaches which can be used to determine the viability of the order increment.
Simply accepting an order increment without proper analysis is a strategy certain businesses as they use quick and desperate decision making approaches to their advantage. This is because many business owners and heads are unwilling to let the order go thus committing to the orders without performing the required research and analysis.
About the order increment of 6000 test within the same time frame as the previous 12,000 tests, the company needs to ensure they are securing adequate profit. This can easily be determined by calculating the cost of the previous orders as compared to the cost of the additional order. The profit for both the orders should remain relatively the same proportion or ratio. This means if the profit of the previous order for 20% of the total costs, the new order should also yield a 20% profit on the final cost of the test.
It is illustrated in this study of Managerial Accounting assignment on decision making approaches that this would constitute to increasing each of the urgent order test prices considerably due to the extra cost incurred to execute the order within the stipulated time frame but would also ensure the business is not experiencing any unnecessary loss of profit due to the unseen extra costs (Schiemann & Guenther, 2013).
Balakrishnan, K., Bartov, E., & Faurel, L. (2010). Post loss/profit announcement drift. Journal of Accounting and Economics, 50, 20–41. DOI:10.1016/j.jacceco.2009.12.002
Lord, J. M., & Westoby, M. (2012). Accessory costs of seed production and the evolution of angiosperms. Evolution, 66, 200–210. DOI:10.1111/j.1558-5646.2011.01425.x
Schiemann, F., & Guenther, T. (2013). Earnings predictability, value relevance, and employee expenses. International Journal of Accounting, 48, 149–172. DOI:10.1016/j.intacc.2013.04.001
Toms, J. S. (2010). Calculating profit: A historical perspective on the development of capitalism. Accounting, Organizations and Society, 35, 205–221. DOI:10.1016/j.aos.2009.06.002