Question

we use various aspects of managerial accounting that are meant to give you the foundation needed to understand, analyze and evaluate a company’s performance as a company manager as well as an external user of financial information.

• which of these tools will be of greatest benefit to you (describe at least 3)? Why? Be specific

Answer 1

The three aspects of the managerial accounting which will help a manager to understand, analyse and evaluate the company’s performance are:

a) Project appraisals: The manager can have the project taken up by the company through the method of appraising like Net Present Value of the cash flow, Internal rate of return, cost-benefit analysis and payback period method. The manager can confirm that the company is pursuing profitable business or not.

b) Capital structure: The manager can assess the weighted average return of the capital structure of the company and then evaluate the quality of the leverage applied ie. loan involvement, by the company. As long the cost of borrowing is less than the return on capital, the shareholders of the company are benefited and the company is achieving its goal to enhancing the shareholders wealth.

c) Make and Buy decisions: The manager can do the evaluation of the product manufactured by the company are economically produced. If the procuring the same product from the outside producer is cheaper to manufacturing in-house, then the company should buy the product from outside and employ its resources to some other profitable goals/business.

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