Question

Need a paragraph and examples to answer the following:

Decision Making: Post comments and explain, with examples, how decision making and analysis, with the tools from our course, may be of value to you and your future endeavors. Include specific examples such as a company seeking to increase profits would ....

Thank you,

Below is one of the examples on how a student answers:

This course has given me first hand experience with some of the common methods used for decision-making and analysis. For instance, budgets, differential, vertical and horizontal analysis methods are all tools which are commonly used within the business world.

            Budgets are a universal tool used within all organization regardless of whether or not they are for profit. As we have seen, based on the text, budgets can be used at many different levels within an organization. The budget is a great guide post for performance metrics. A budget allows management to see forecasted (expected) goals compared to actual performance. It allows management to quickly identify areas of success or opportunity.

            For strategic purposes, the differential analysis tool is particularly effective. With the differential analysis, management has a formalized approach to weighing cost and benefit of a given project. Specifically, a manager can determine whether or not purchasing new equipment or making an investment, would be profitable for their business.

            For internal, trend analysis, the vertical and horizontal analysis methods are a great resource for managers. These methods allow for organizations to determine which metrics are either growing/declining most year-over-year. Or they may help identify a distribution of cost verses profit. Regardless, of what the metric is, these tools create a clear picture for management to either proceed with business as usual or for the possibility of adapting a new strategy.

Answer 1

Decision making is one of the important things in today’s competitive business world. This course has taught me a lot of managerial techniques which can be used in real business world to improve cost competitiveness and contribute. For example, cost volume profit analysis, standard costing and flexible budgets.

Cost volume profit analysis is the analysis of relationship between cost, volume and profits. It is one of the important managerial techniques used by managers in internal decision making since it helps in evaluation of alternatives at different level of volume. The most common use of cost volume profit analysis is Break even analysis and Margin of safety analysis. Breakeven point is the point at which there is not profit or loss to the business. It is the point at which Contribution margin is equal to fixed cost of the business. The lower the breakeven point it is better for the company. Margin of safety is the difference between actual sales and break even sales. The Margin of safety sales gives the profits to the company since at breakeven point all fixed costs are recovered. For example: A Firm should choose investment in projects which have lower breakeven point and higher margin of safety.CVP analysis helps in analysing profitablity at different levels of volume and it helps in decision making for example: new production introduction, product costing, product pricing, Make vs. buy decision, flexible budgeting, etc.

Standard costing is the use of standards in cost management for cost control and cost reduction. It helps in budgeting exercise at the beginning of the year. All the operations of the firm are monitored through a budget with standards incorporated in it. For example: Material cost can be controlled and monitored against the standard costs. The variance can be analysed by computing price and efficiency variance. Price variance is the difference between standard price and actual price. Efficiency variance is the difference between standard usage and actual usage of material.

Flexible budgets are a variation of static budget which is widely used in organisation for cost management and profitablity analysis. Flexible budgets are a reliable managerial tool to improve decision making. The most commonly used report is flexible budget performance report which has comparison of actual results with static budget and flexible budget. It helps in understating the variance at static volume and actual volume. It helps in meaningful comparison of actual results with same level of activity as actual results.