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Management accountiong - Essay Example

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Management accountiong

asure of two projects, this project favors the project with which has a higher present value though its likely to have a higher initial capital outlay, its not dependable when projects have different capital outlays.
It's difficult to calculate as well as to understand and use in comparison with the pay back method or even the returns on the capital employed.
Advantages of internal rate of return
It considers the time value of money.
It takes into account the total cash flows and outflows.
It's easy to understand
It's consistent with the overall objective of maximizing the shareholders wealth.

Limitation of the internal rate of return
It involves tedious calculation.
It produces multiple rates which can be confusing.

3. ACTIVITY BASED COSTING
This is a controlling and a planning tool which allocates costs to products in value chain analysis. It enables the overhead costs to be allocated to the respective product which incurred it rather than using the traditional methods where by the overhead costs were allocated as a percentage of the total overhead costs. It enables the managers to identify the products which incur higher costs therefore to charge them at a higher price or look for means to control these costs.

4. PEST ANALYSIS
Political environment: These affect the operations of the business in UK; these laws encourage the existence of free markets where the market forces set the equilibrium hence there is fair competition. This encourages the supermarket to compete at a fair ground with its competitors.
Economic environment: this affects the consumer consumption depending with the disposable income; this affects the way in which the supermarket will stock its products. Corporate taxes will also determine the manner in which it will price its products. If the...
It enables the overhead costs to be allocated to the respective product which incurred it rather than using the traditional methods where by the overhead costs were allocated as a percentage of the total overhead costs. It enables the managers to identify the products which incur higher costs therefore to charge them at a higher price or look for means to control these costs.
Political environment: These affect the operations of the business in UK; these laws encourage the existence of free markets where the market forces set the equilibrium hence there is fair competition. This encourages the supermarket to compete at a fair ground with its competitors.
Economic environment: this affects the consumer consumption depending with the disposable income; this affects the way in which the supermarket will stock its products. Corporate taxes will also determine the manner in which it will price its products. If the taxes are very high then this will be reflected in the prices.
Technology: the level of technology used in production affects the prices of the products of the supermarket, if the competitors are well off with better technology then are likely to have higher returns if the market prices are equal.
Performance related pay is known to improve manager's production due to the fact that they have a budget against which controls them in using the firm resources. ...Show more

Summary

A changing discount rate can be build into the net present value calculation by ordering denominator, this feature becomes important as the rate normally changes because the longer the life span, the lower is the value of the money and higher the is the discount rate.
Author : clifton10
Management accountiong essay example
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