Q1 Explain the role of the managerial accounting decision making?
ANSWER:
 It enables the management to ascertain the cost and profitability of each individual
product separately.
 It helps management in controlling costs, reducing avoidable expenditure and
minimizing wastage and losses.
 It ensures the quantitative reconciliation(finding difference between) of quantity of
input with quantity of output. wastage and scrap. The management is able to regulate and
monitor the movement of Raw Materials from Store to Finished goods warehouse, which
prevents theft or loss of material during handling.
 It facilitates management in decision making and preparing budget policies.
Q2 Understand the steps in decision making process ?
ANSWER:
Steps of the Decision Making Process
The following are the seven key steps of the decision making process.
1. Identify the decision
The first step in making the right decision is recognizing the problem or opportunity and
deciding to address it. Determine why this decision will make a difference to your customers or
fellow employees.
2. Gather information
Next, it’s time to gather information so that you can make a decision based on facts and data.
This requires making a value judgment, determining what information is relevant to the decision
at hand, along with how you can get it. Ask yourself what you need to know in order to make the
right decision, then actively seek out anyone who needs to be involved.
“Managers seek out a range of information to clarify their options once they have identified an
issue that requires a decision. Managers may seek to determine potential causes of a problem, the
people and processes involved in the issue and any constraints placed on the decision-making
process,” Chron Small Business says.
“Managers seek out a range of information to clarify their options once they have identified an
issue that requires a decision. Managers may seek to determine potential causes of a problem, the
people and processes involved in the issue and any constraints placed on the decision-making
process.”
3. Identify alternatives
Once you have a clear understanding of the issue, it’s time to identify the various solutions at
your disposal. It’s likely that you have many different options when it comes to making your
decision, so it is important to come up with a range of options. This helps you determine which
course of action is the best way to achieve your objective.
4. Weigh the evidence
In this step, you’ll need to “evaluate for feasibility, acceptability and desirability” to know which
alternative is best, according to management experts Phil Higson and Anthony Sturgess.
Managers need to be able to weigh pros and cons, then select the option that has the highest
chances of success. It may be helpful to seek out a trusted second opinion to gain a new
perspective on the issue at hand.
5. Choose among alternatives
When it’s time to make your decision, be sure that you understand the risks involved with your
chosen route. You may also choose a combination of alternatives now that you fully grasp all
relevant information and potential risks.
6. Take action
Next, you’ll need to create a plan for implementation. This involves identifying what resources
are required and gaining support from employees and stakeholders. Getting others onboard with
your decision is a key component of executing your plan effectively, so be prepared to address
any questions or concerns that may arise.
7. Review your decision
An often-overlooked but important step in the decision making process is evaluating your
decision for effectiveness. Ask yourself what you did well and what can be improved next time.
“Even the most experienced business owners can learn from their mistakes…be ready to adapt
your plan as necessary, or to switch to another potential solution.”
Q3 Understand the characteristics of relevant information?
ANSWER:
There is general agreement that, before it can be regarded as useful in satisfying the needs of
various user groups, accounting information should satisfy the following criteria:
Understandability
This implies the expression, with clarity, of accounting information in such a way that it will be
understandable to users - who are generally assumed to have a reasonable knowledge of business
and economic activities
Relevance
This implies that, to be useful, accounting information must assist a user to form, confirm or
maybe revise a view - usually in the context of making a decision (e.g. should I invest, should I
lend money to this business? Should I work for this business?)
Consistency
This implies consistent treatment of similar items and application of accounting policies
Comparability
This implies the ability for users to be able to compare similar companies in the same industry
group and to make comparisons of performance over time. Much of the work that goes into
setting accounting standards is based around the need for comparability.
Reliability
This implies that the accounting information that is presented is truthful, accurate, complete
(nothing significant missed out) and capable of being verified (e.g. by a potential investor).
Objectivity
This implies that accounting information is prepared and reported in a "neutral" way. In other
words, it is not biased towards a particular user group or vested interest.
Q4 Distinguish relevant costs and benefits from irrelevant costs and benefits?
ANSWER:
Difference between Relevant Cost and Irrelevant Cost
Difference between Relevant Cost and Irrelevant Cost
Relevant Cost is a cost that is pertinent to the decision being made. To be relevant, a cost must
be a future expected cost that differs between alternatives. Relevant costs are those costs that will
make a difference in a decision. Irrelevant Cost is an avoidable cost is a cost that can be
eliminated in whole or in part by choosing one alternative over another. These costs are those
that will not change in the future when you make one decision versus another.
The difference between relevant cost and irrelevant cost are given below –
Relevant cost
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A cost that is pertinent to the decision being made.
To be relevant, a cost must be a future expected cost that differs between alternatives.
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Unavoidable costs are irrelevant cost.
These costs are mainly related to operational or recurring expenditures.
These costs are incurred mainly by the lower management.
The types of relevant costs are incremental costs, avoidable costs, opportunity costs, etc.
Irrelevant cost
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A cost that is unrelated to the decision being made.
Future costs that do not differ between the alternatives.
Avoidable costs are relevant costs.
These costs are mainly related to capital or one-off expenditures.
These costs are mainly incurred by top management.
The types of irrelevant costs are committed costs, sunk costs, non-cash expenses, overhead
costs, etc.
Q5 Analyze situations that involve special decisions ?
ANSWER: