Financial Accounting

Topics: Decision making, Economics, Costs Pages: 2 (616 words) Published: September 19, 2013
Managing Finance:

The relevance of evaluating Costs when making business decisions.

Managers often find themselves in positions to make decisions as they execute their day-to-day responsibilities. In most cases, these decisions are often in line with the goal of amplifying the existing value of the upcoming cash flows (Atrill & McLaney, 2010). It is therefore imperative for managers to evaluate the relevant costs for decision-making to guarantee that the right opportunities are harnessed to the advantage of the organization (Jay, 2004). Various costs do however exist in accounting. As such, some costs are based on historical events and have little significance in the process of making decisions for the future. In line with Atrill and McLaney, (2010), it is imperative for manages to focus more on the economic costs, e.g. opportunity costs as they specify relevant information concerning possible decisions and the grounds which allows managers to deliberate the advantages of each option. Atrill and McLaney (2010), recommended managers to pay more attention on costs that highly influence future choices, such as opportunity and outlay costs. They also argued that these costs add value to the organization’s strategic objectives and the financial requirements necessary to follow and realize profits. Therefore, managers have the responsibility to scrutinize the costs

In line with Atrill and McLaney (2010), a cost is the amount or financial value of the resources that organizations/individuals pay to realize their strategic goals. Jay (2004) defined opportunity costs as the monetary value of choosing one option instead of another available choice whereas, outlay costs refer to the monetary value those organizations or individuals spend in pursuit of that desired objective. For these costs to become germane, they must be in harmony with business goals and be different from one achievable conclusion to the next.

Some of costs are inapt in the process of...
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