These all have to be 150 words between the two so I say 150 between the two.

These all have to be 150 words between the two so I say 150 between the two.

Week 5
Assets

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Question A

What factors must management consider when deciding whether to continue using an asset, repair, or replace it?

Question B

Identify the relevant costs in a make-or-buy decision and provide an example of each type of cost.

Week 6
Time Value of Money

Question A

Discuss the significance of recognizing the time value of money in the long-term impact of the capital budgeting decision.

Question B

Discuss how the internal rate of return (IRR) method differs from the net present value (NPV) method. Be sure to include an explanation of what the IRR method is and what the NPV method is.

Week 7
Participative Budgeting

Question A

What is participative budgeting? What are its potential benefits? What are its potential disadvantages?

Question B

What is budgetary slack? What incentive do managers have to create budgetary slack?

Week 8
Review and Reflect

If you can remember the assignments you can do this one if not let me know and I will do it. I need week 5 by 12th.

Review and reflect on what you learned in the past 8 weeks.
What is the most practical and easily applied lesson you learned?
What was the hardest to grasp? Why?
What else do you need to know about Managerial Accounting?

 

ANSWER

Week 5: Assets

What factors must management consider when deciding whether to continue using an asset, repair or replace it?

Whenever an asset, which could be a piece of equipment or tool used in production, breaks down, a quick and effective solution becomes necessary in order to minimize the downtime and proceed with production. Breakdowns affect every part of the production, from productivity to the bottom line of the company. Most of the time, technicians and managers choose to repair an asset that has broken down since replacement is usually a larger investment. However, frequent breakdowns and repair may cost more than the cost of replacing an asset with a new one. In order to make a good decision, management considers factors such as the costs of repair and replacement, the age of the asset, the downtime during repair time, safety concerns with continuous repair, and the asset’s efficiency (Garrison et al., 2010). After consideration of these factors, the management or the manager in charge make an informed decision on whether to continue using a faulty asset as it is, whether to repair it or whether to replace it.

Identify the relevant costs in a make-or-buy decision and provide an example of each type of cost.

The purpose of making a make or buy decision is to ensure that a company manufactures a commodity or material if the manufacturing will cost less than buying it and to ensure that the company buys the material if it costs less than manufacturing it. Various costs are involved in a make or buy decision; relevant costs and irrelevant costs. Relevant costs are those costs that can be changed or avoided. These costs include direct labor, direct materials, and variable overheads or incremental costs (Garrison et al., 2010).

Example: ABC Company produces a material which needs a specific type of seal. The company currently buys the required seals from another firm at a cost of $5 per piece. ABC can manufacture the seals internally, incurring the following costs: Direct labor = $0.5/unit; Direct material = $1.5/unit; and Variable overhead = $1/unit.

The cost of producing one seal is, therefore, $0.5+$1.5+$1 = $3. The management of the company will make a decision to produce the seals since the cost of production ($3) is lower than the cost of buying ($5).

Week 6: Time Value of Money

Discuss the significance of recognizing the time value of money in the long-term impact of the capital budgeting decision.

The time value of money is significant in all decisions on capital budgeting as it provides direction for business owners or management to adjust the cash flows for time passage. The process of adjusting cash flows for time passage is commonly referred to as discounting to present value, and it allows for the preference of money that has been received today over money that will be received tomorrow or in the future. All the capital budgeting techniques, including the common methods such as net present value, internal rate of return, the total cost approach, and the calculation of the project profitability index utilize the time value of money since it has a direct impact on the budget developed (Garrison et al., 2010). Understanding the time value of money enables management to develop good capital budgets and make appropriate decisions on whether certain projects are acceptable or not.

Discuss how the internal rate of return (IRR) method differs from the net present value (NPV) method. Be sure to include an explanation of what the IRR method is and what the NPV method is.

The IRR and the NPV are both capital budgeting techniques (Hilton & Platt, 2013). The IRR method uses the undiscounted cash flows of a project or production activity to find the discount rate, resulting in a zero value which represents the break-even point of the activity or project profitability. The manager in charge divides the required investment by the annual cash inflow that the activity or project is estimated to produce, deriving the internal rate of return factor. This factor is compared to the minimum acceptable rate of return for the company. The NPV technique applies time value of money in the calculation of a project’s profitability. The manager first identifies the cash inflows and outflows for the project. After that, the determined values are adjusted to the present value, after which the difference is calculated (Garrison et al., 2010). Where the net present value if larger than or equal to zero, the project proceeds since it will result in a return that is larger than or equal to the acceptable rate of return.

Week 7: Participative Budgeting

What is participative budgeting? What are its potential benefits? What are its potential disadvantages?

Participative budgeting refers to the form of budgeting where the budget is developed after the input of all the subordinate managers rather than the budget being imposed by the top management (Hilton & Platt, 2013). Participative budgeting aims at dividing budget responsibilities between the subordinate managers in order to bring about a sense of personal ownership on the final budget developed. Participative budgeting has certain advantages for an organization. These include the transfer of information from the subordinates to the superiors (increasing the level of job satisfaction of the subordinates), increased motivation in the subordinate managers, and an increased sense of budget responsibility. However, participative budgeting also has its disadvantages, including being time-consuming and resulting in the padding of the budget. The success of the participative budgeting will ultimately depend on the level of subordinate influence and the budget’s complexity. These factors will determine whether the stated disadvantages will affect the effectiveness of the budgeting process.

What is budgetary slack? What incentive do managers have to create budgetary slack?

Budgetary slack refers to the intentional under-estimation of revenues that are budgeted or the over-estimation of the expenses in a budget (Hilton & Platt, 2013). Budgetary slack allows managers a better chance of realizing good performance and conducting activities within budget. Budgetary slack occurs in cases where there is high uncertainty about the expected results in the future since managers become more conservative on figures. It may also occur where an organization applies participative budgeting, involving the inclusion of a large number of subordinates in budgeting. Participative budgeting gives subordinates an opportunity to introduce budgetary slack. Another possible scenario where budgetary slack may be realized is where a manager wants to report that the company is meeting the budget, to the company’s investors (Hilton & Platt, 2013). Managers have an incentive to introduce budgetary slack because they are mostly compensated on the basis of their performance with reference to meeting the budget (where bonuses and appraisals are tied to the meeting of budget numbers).

 

 

Week 8: Review and Reflect

What is the most practical and easily applied lesson you learned?

Make or buy decision making. The lesson on make-or-buy decisions was easily understandable since I was able to understand all the various relevant and irrelevant costs associated with decision making, having experienced cases where companies chose to produce their own raw materials instead of buying them. The skills instilled in the lesson are easy to apply in my future career.

What was the hardest to grasp? Why?

The lesson I found difficult to grasp was the time value of money. The explanations on why the time value of money is important in budgeting and planning were not quite clear. However, after going through various explanations and examples related to the time value of money from various sources, including the internet, I was able to understand the concept clearly.

What else do you need to know about Managerial Accounting?

            I believe that the course has been exhaustive on the various issues and problems encountered in managerial accounting. All the concerns that I had, related to budget management and accounting, have been addressed in this course.

References

Garrison, R. H., Noreen, E. W., Brewer, P. C., & McGowan, A. (2010). Managerial accounting. Issues in Accounting Education, 25(4), 792-793.

Hilton, R. W., & Platt, D. E. (2013). Managerial accounting: creating value in a dynamic business environment. McGraw-Hill Education.

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