Management Accounting Issues

Management
Accounting Issues

INTRODUCTION...........................................................................................................................3
Issue 1..............................................................................................................................................3
a. Evaluation of investment options.............................................................................................3
b. Analysis of the results..............................................................................................................5
c. Limitations of analysis.............................................................................................................6
Issue 2..............................................................................................................................................6
a. Determination of break-even and MOS...................................................................................6
b. Advising on alternative options...............................................................................................8
Issue 3..............................................................................................................................................8
a. Preparation of cash budget.......................................................................................................8
b. Critically analyzing cash budget and suggesting measures for improvement.........................8
c. Explaining the reason for preparing cash budget.....................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Management accounting includes formulation and facilitating statistical & financial information
to the managers of an organization which helps them in making routine or short term decisions.
The present study is based on AV Roe, engineering company headquartered in Manchester
which formerly made the aircraft but presently specialized in respect of medical equipment. The
report highlights application of capital budgeting tools and break even analysis for choosing best
option. Moreover, it also presents framing of the cash budget with appropriate analysis.
Issue 1
a. Evaluation of investment options
H type of ventilator
Years Profits Discounting factor
Discounte
d cash
inflows
1 550 0.91 500
2 800 0.83 661.2
3 1050 0.75 788.9
4 1300 0.68 887.9
5 1550 0.62 962.4
Total of discounted cash inflows 3800.4
less: Initial investment 3000
NPV
sum of discounted cash inflows-
initial outlay 800.4
Years
Cash
inflows
0 -3000
1 500
2 661.16
3 788.88
4 887.92
5 962.43
IRR 8%
Years Cash inflows
1 500