Financial Decision Making: Incremental Costing, Cost Volume Profit Analysis and Value Chain Analysis

This article discusses financial decision-making process, including incremental costing technique, cost volume profit analysis, and value chain analysis. It also provides a case study of Eagle Eye Solution.

FINANCIAL DECISION
MAKING

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Short term and long term decision-making process....................................................................3
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Financial decision-making is a practice involve taking the financial decisions of the
organisation. This project is based on the case study of Eagle eye solution This project is all
about analysing the financial decision-making associated with the business entity. IN this project
different elements associated with the financial decision making will be discussed. Henceforth,
report will emphasis over the short term and long term decision-making process. Different
techniques such as incremental costing technique and cost volume profit analysis will be
discussed under this project. Furthermore, project will emphasis over the value chain analysis as
a part of this report.
MAIN BODY
Short term and long term decision-making process
Financial decision-making process is defined as a decision-making area associated with
the finance related tools and techniques at a business entity (Ross III and Coambs, 2018). The
process of financial decision-making is more like analysing the financial requirements of the
business entity and to take the strong finance related decisions for the business. The principles
associated with financial decision-making can be demonstrated in the following points.
Incremental costing technique
Incremental cost analysis is a practice used in cost accounting to approach the entire
costing practice. This is a technique used to identify the differences between the several cost
Eagle eye solution has incurred in against to perform the respective operations. This practice is
more emphasised towards the cost differences between different alternatives. This entire process
associated with multiple analytical costs like sunk cost or past cost and so many other costs. The
major emphasis over the incremental costing is over taking the decision in regard to the fact that
the business entity should focus on the self production process or the outsourcing of its services
(Gardi, 2021). The basic aim of the costing technique is to identify the all possible cost
differences that can influence the profitability and the outcome associated with the business
organisation., This costing technique is more like analysing the overall results of the process that
due to multiple costs Eagle eye solution company is incurred the overall impact over production
or outcome of the company. This technique give focus over the final outcome and its associated
cost.

The incremental analysis of cost involve the cost structure segregated into fixed cost,
variable cost and semi variable like cost to entertain the business operations. This technique also
assess all possible situation Eagle eye solution face in against to deliver the business operation.
Organisation seek multiple proposal and investment option which require for the business entity
to select the most fruitful project option. Every time company choose one particular project
option this also involve the opportunity cost that is incurred for loosing other option in other to
select the one. Incremental costing technique also segregate the relevant and non relevant costs
incurred by the business unit (KUMAR, 2021). This technique favours the Eagle eye solution to
maximises the overall capital outcome in favour to the business unit. The role of the costing
technique is to make some strong decisions to empower the best form of functional growth for
the business unit. Non relevant sunk cost involve such expenses that has already incurred by the
business unit. As the sunk cost will remain incurred regardless of the decisions that are made by
the business unit. Relevant cost are also denoted as the incremental cost because it is only
incurred if the activity of relevance has been increased or initiated.
The significance of incremental costing technique is such that it support the Eagle eye
solution to decide whether the certain proposal or option should be selected by the business unit
or not. In process to allocate the resources of the business unit in different project options
incremental costing technique also favour the entity in such a decision that is made. Decision
making in relation to whether organisation should continuously manufacture the product or to
outsource the service is also undertaken as a part of the incremental costing technique. It can
precisely state the fact that incremental costing technique allow the business unit to favour the
organisation in making some strong financial decision-making that is favoured the business unit
to maximises its financial resources
Cost volume profit analysis
Cost volume profit analysis is another technique that is a part of financial decision-
making process adopted by the business unit. Financial professional at the Eagle eye solution
adopt this technique to analysis and evaluate about the cost structure company follow and the
possibility to obtain the revenue against business operations entertained by the organisation. This
technique evaluate the effect of sales volume and product cost over the operating profitability
obtain by the Eagle eye solution. The aim of the business operations of the company is to
maximise the profitability of the business entity (Lichtenberg, Gross and Campbell, 2020). This

technique of analysing cost highly based on the aspect that the business unit aims to maximise
the return and profit against the business operations channelises by the company.
Different costing factors such as fixed cost, variable cost, semi variable cost are involved
in the business functions channelises by the company in against to obtain the profit against the
business operations obtained by company. In this practice financial experts also compare the
overall operating costing of the company with the cost structure adopted by the other competitors
associated with the Eagle eye solution. Different measures are involved under this process that
involve contribution margin of company. This is a difference between the sales value and
variable cost incurred by the business entity for the respective time (Peng and Huang, 2020).
Contribution margin ratio is also analysed under this part. This is a ratio of contribution against
the sales of the company. Break even point is another element that is analysed under this
practice. This is a point of sale that denote all the cost incurred by the business unit in against to
manufacture the final product. This is a no profit and no loss kind of situation at a business unit.
Target sales volume possibly hit by the company is also analysed under this technique. Margin of
safety is another financial element of factor that is analysed by the company.
Cost volume profit analysis is an important technique that support the business unit to
improve the growth possibilities of the Eagle eye solution by undertaking some strong financial
decision-making. The entire process is highly productive and favour company to maximise
business returns and profitability by controlling the cost of delivering the final products offer by
the business unit.
Value chain analysis
Value chain analysis is a technique that involve multiple practices such as market
research, prepare action plan, identify opportunities and collect data of the market. All these
different stages favour and allow the Eagle eye solution to control the overall costing of the
business operations (Raut, 2020). This e tire practice is not directly related to the costing and
financial element but with support of market research and such like elements business entity can
control its overall cost and maximises business returns. The role of value chain analysis is to
ensure the cost friendly operations and functions with support of strong decision-making process
and such like elements. Data related to different cost factors, cost controlling elements and such
like factors to overcome the extra cost company incurred in against to perform the respective
operations. Value chain mapping involve all the different stakeholder group associated with the

Eagle eye solution . Identify opportunities and constraints using the value chain framework. In
the end findings are collected to ensure the overall success of the business operations entertained
by company. The role of the value chain analysis is to create value in business operations
entertain by the company. In context to the practical situation value chain analysis do not hold
the strong support against adopting the technique to control the cost. The role of incremental
costing is not directly empower the cost controlling approach of the business unit.
CONCLUSION
Financial decision-making is a process defined as different elements associated with the
finances of the company. This involve analysing the strategies that can be adopted to control the
overall cost incurred to approach the best level of financial controlling in the business. Practices
like incremental costing technique, cost volume analysis technique and value chain model is used
to control the cost under the financial decision making process. All these techniques create a
direct impact over cost controlling, profit maximisation of company and such like financial
factors of the business unit. This can be indicated that the business entity should channelise the
best form of financial decision-making for enhancing the overall growth of the company.

REFERENCES
Books and Journal
Gardi, B., 2021. Investigating the effects of Financial Accounting Reports on Managerial
Decision Making in Small and Medium-sized Enterprises. Available at SSRN 3838226.
KUMAR, K., 2021. Essays on household financial decision-making: Evidence from Indian
households (Doctoral dissertation, Durham University).
Lichtenberg, P. A., Gross, E. and Campbell, R., 2020. A short form of the Lichtenberg financial
decision rating scale. Clinical gerontologist. 43(3). pp.256-265.
Peng, X. and Huang, H., 2020. Fuzzy decision making method based on CoCoSo with critic for
financial risk evaluation. Technological and Economic Development of Economy, 26(4).
pp.695-724.
Raut, R. K., 2020. Past behaviour, financial literacy and investment decision-making process of
individual investors. International Journal of Emerging Markets.
Ross III, D. B. and Coambs, E., 2018. The impact of psychological trauma on finance: narrative
financial therapy considerations in exploring complex trauma and impaired financial
decision making. Journal of Financial Therapy, 9(2), p.4.