Question

1. Al Barari Engineering LLC management have realized the importance of accurate costing and recruited Abdul as their Management Accountant at the beginning of their budgetary cycle.

Instructions

Please help Abdul to reply to the following issues raised by management (5 marks each. Total 15 marks)

1. Two mutually independent capital investments have same NPV. What should they select?
2. There is lot of work involved in separately recording fixed and variable costs. Why is Abdul requesting the company to do all this work?

Al Barari management are unhappy their managers are unable to deliver on budgets handed down to them. What could be the possible reasons?

Answer 1

a)Two mutually independent capital investments have same NPV

a. Two mutually independent initial expenses have the corresponding NPV that indicates that the choice of one project is not clinging on the other. The business can receive all the schemes also if they the same NPV because they are no compared to each other.

b. Fixed costs do not change with a product and have to be acquired irrespective of the level of composition. Shifting prices change with the level of composition and are provoked only if there is a product. Fixed costs are essential to determine the break-even point i.e. the least that the corporation will have to trade cover at least fixed prices and be in a no-profit and loss position. Variable costs are necessary to recognize the overall prices that will be contracted while the production method.

c The following can be the causes for not reaching budgets:

1. Designing too many items and not remaining genuine. Businesses have unnecessary aims to achieve the numero uno which can be difficult to complete in a short period.

2. Not doing a complete analysis of the resources onward with the present events and explain the purposes for loss if any.

3. Gamboling any crucial things off the estimates is one of the other causes of resources decline. For example allocation of workers, supplies.

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