Short Term Decision Making and Suitable Tools

Added on - 22 Jul 2020

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Finance for Non-FinancialManager
TABLE OF CONTENTSINTRODUCTION................................................................................................................................1TASK 1..............................................................................................................................................1Tools and methods used in short term decision making.......................................................1Assumptions, limitations and applicability of modern management accounting tools........2Explaining and evaluating use of ratio analysis in evaluating performance..........................3CONCLUSION....................................................................................................................................4INTRODUCTION................................................................................................................................1TASK 2..............................................................................................................................................1Preparing a report to the board outlining possible limitations of investment appraisaltechniques and with their evaluation....................................................................................1Determining the alternative method of investment appraisals............................................5Evaluating risk management techniques in investment appraisals.......................................5CONCLUSION....................................................................................................................................6REFERENCES.....................................................................................................................................7
INTRODUCTIONShort term decision is that type of decision which are made for the short duration of thebusiness operations in order to meet short term business requirements or objectives andfacilitating the best use of resources.Short term decision is easy and quick toimplement and to withdraw as well due to change in environment or in policy.The present report will consider this nature of short term decision making andapply suitable tools and methods like budgets and variance analysis.Also, thereport will critically evaluate how will the tools could be applied inMarriott Hotel an USA based multinational diversified hospitalitycompany.In addition, the report will also address the assumptions, limitations,applicability and development of modern management accounting techniqueslike balanced score card and activity based costing.TASK 1Tools and methods used in short term decision makingShort term decision making is the process used by Marriott hotelto achieve its short-term targets like the quarterly or half yearly. Asthey can be changed according to the change in policy so are veryflexible(Hunink and Glasziou, 2014). There are various tools and techniqueswhich are used to formulate the short-term decisions in Marriott hotel as theshort-term target is to increase the sale by 3% till this quarter end. To achievethis target, Marriott hotel management needs to analyse various kinds ofmethods used in decision making.In the long-term decisions, value ofmoney and the worth of money at some future date is considered whilein short term they are not. Various tools, methods and techniques used informulating short term decisions are as follows:Relevant costing approachin this the unnecessary costs or data whichis of no certain use for the management of Marriott hotel would be eliminatedand avoided (Watkiss, Blyth and Dyszynski, 2015). This is a managerialaccounting term which describes all the costs which can be avoided that areincurred while making the short-term decision of hotel. So, all the costs whichare not important for company must be avoided like the sunk cost which hasbeen incurred by the business but cannot be recovered now.Variance analysis is the difference between the actual andplanned budgets and is short term decision making that is used byMarriott hotel.Variance analysis can also be used as the tool for budgetary1
control by evaluating the performance. This in short term decision making canalso be used for computing the cost and revenue as standard cost, actualamount incurred and budgeted cost.Budgetsare the financial plans set by the management of Marriott hotel for thedefinite period generally for a quarter, half or whole financial year (Fraley andHudson, 2014). Budgets include all the costs, revenues and the future financialconditions of company which is planned. Short term decision can also be madeby using this budget for the quarter so that the target of increase in sale by3%could be achieved.Budgets are used to control the operations such as cashmanagement, sales management, and raw material cost management. Hence, aspart of budgetary control it is required to systematically compare actual resultsagainst budgeted activities in order to evaluate the extent of achievement. Theresults of this comparison are used to direct the attention of management towardsspecific problem areas. Examples – if there are cash short ages, then need to look foroptimum/cost effective financing option. If there is surplus cash it is required to lookforinvestmentopportunities.Assumption underlying the preparation of budgets such as basis of forecasting eachtype of expenditure, percentage increase in sales due to increase in sales price arefew examples. At the same time, you are also required to consider and evaluate thelimitations of budgets. These may likely to include for an example extent of accuracyetc.Assumptions, limitations and applicability of modern management accounting toolsManagement accountingis the collection, analysation and thenreporting of operation and financial information of business. Managementaccounting help in determining amount of profits or cash flow which is generatedby Marriott hotel for the specified product or service offered to public (Bjørnenak,2013). There are various kinds of techniques used to develop modernmanagement accounting which are having their own limitations and applicabilityin organisation.Standard costingis used to measure the standard cost incurred forproducing the product and then that standard cost is compared with the actualcost. In this standard costing accounting transactions are recorded at theirexpected cost and the analysed with the actual cost (Jermias, 2017). Thelimitationsof standard costing are that it requires understanding of how theprocess of cost setting is working. Also, the standard cost for production is notcertain it could be changed at any point of time.2
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