Financial Decision Making

Topics: Cost accounting, Activity-based costing, Decision making Pages: 19 (3097 words) Published: December 24, 2012







DATE ASSIGNMENT IS DUE: 20th November 2012

TUTOR: S. M. Azeem

Please, ensure you sign the statement of authentication and follow the notes given at the end of the assignment


Organisations operate in a very competitive and continually changing environment where effective decision making is crucial if an organisation is to survive or even be profitable. An important resource for decision making is financial and cost information and it is important for managers to be able to interpret, analyse and evaluate this information effectively and have a sound foundation in financial principles and techniques relevant to the strategic management processes.

This assignment covers four learning outcomes:

1 Be able to apply cost concepts to the decision-making process

4 Be able to recommend cost reduction and management processes for an organisation

5 Be able to use financial appraisal techniques to make strategic investment decisions for an organisation

6 Be able to interpret financial statements for planning and decision making

TASK 1 (Be able to apply cost concepts to the decision-making process) comprise the following aspects:

➢ Generally speaking, Pricing strategies are of two generic types: costs-based and Market-oriented. Whereas cost-plus approaches to pricing are proactive, in that prices are largely determined by the organisation's financial performance objectives, market-oriented approaches are reactive to market conditions and are shaped by the organisation's marketing goals.

1.1 explain the importance of costs in the pricing strategy of a pound shop or a food takeaway or a restaurant or a local supermarket

➢ A costing system is the backbone of the management information system, which forms the bases of decision making process and other managerial functions (viz. Planning, organising, staffing, co-ordinating and controlling activities). Thus a costing system should generate relevant, reliable, accurate, and timely cost-based financial data and information.

1.2 design a costing system for use within a pound shop or a food takeaway or a restaurant or a local supermarket

➢ When a costing and pricing systems are implemented, the post-audit of the systems’ performance viz-a-viz system’s objectives always point out the strengths and weaknesses of the system and there is scope for its improvements. Of course, the weaknesses needs to be scrutinised in depth to minimise.

1.3 In the above context propose improvements to the costing and pricing systems used by an organisation. Only general discussion of the improvement areas is required.

TASK II (Be able to recommend cost reduction and management
processes for an organisation)

➢ Cost reduction may be defined as the achievement of Real and Permanent Reduction in the unit cost of goods manufactured or services rendered without impairing their suitability for the use intended or diminution in the quality of the product.

➢ Cost reduction, should therefore, not be confused with cost saving and cost control. Cost saving could be a temporary affair and may be at the cost of quality. Cost reduction implies the retention of essential characteristics and quality of the product and thus it must be confined to permanent and genuine savings in the costs of manufacture, administration, distribution and selling, brought about by elimination of wasteful and inessential elements form the design of the product and from the techniques and practices carried out in connection...
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