Question

Describe a situation in which you made a decision based on accounting information, and identify whether that information was financial accounting information or managerial accounting information.

Answer 1

I am going to discuss a sitution in which I made a decisiom based on accounting infromation of a company.

I was working in a company as CFO and there was a sitution in which I have to choose between two option;

First one was of buying a component of machinery from outside supplier and second one was to develop in internally inside the company.

I have choosed second one option on the basis of available accounting information, which was managerial accounting information because accounting information on the basis of which an officer of a company makes various managerial decisions are known as managerial accounting information.

Apart from this we know that managerial accounting information are useful for the internal users of a company and CFO is the internal user of the company that is why decision made by me (as CFO) was base on managerial accounting information. And management takes such decisions on the basis of various information such as profitability, liquidity, solvency, income statement, cash flows, common size, comparative statements, balance sheet etc.

Thus, I made decision of making that component internally inside the company because our company have sufficient idle capacity for making it and purchasing price from outsider was much higher in compare to producing it internally that is why making it internally is profitable for the company.