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Finance - Managerial Accounting - Essay Example

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Managerial Accounting Introduction Managerial accounting is the branch of accounting that deals with the use of accounting information for assisting managers in making sound business decisions. It is mainly related to costs and not expenses…

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Finance - Managerial Accounting

Hence, managers can influence organizations’ cost behavior to a great extent. This paper will discuss capacity costs, committed fixed costs, and discretionary fixed costs in detail with reference to their current and future impact on business or society. Capacity costs Capacity costs can be simply referred to the fixed costs required for achieving predetermined level of production or meeting desired level of customer satisfaction without compromising product quality. Generally companies infrequently make strategic or capacity decisions because this process is highly complex and time consuming. Furthermore, an incorrect capacity decision may raise potential challenges to an organization’s market competitiveness. However, some well established corporation like Starbuck make capacity decision more frequently as part of their international expansion strategy. Janeba suggests that firms with long term demand variations must be more vigilant while setting their capacity costs as it is not easy to frequently alter the capacity cost structure. In times of unforeseen contingencies like economic downturns, there would be a significant fall in demand and therefore companies may struggle to recover fixed capacity costs fully. ...
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