Distinguish between the different types of costs that were examined this week, such as sunk costs, opportunity costs, and outlay costs? What costs are relevant to decision making? How do managers...

1. Distinguish between the different types of costs that were examined this week, such as sunk costs, opportunity costs, and outlay costs?


2. What costs are relevant to decision making?


3. How do managers overcome the natural tendency to consider historical and sunk costs when evaluating business alternatives?

Not: - this question are consist of three (3) parts please cover all these questions in this assignment in order to my requirements too



Need about 500 words.


My requirements.

1. 
   It is MUST important to use my ATTACHED FILE
   as one reference.


2. 
   USE THIS ARTICLE AS AN ADDITIONAL REFERENCE
   
   http://www.accountancy.com.pk/articles_students.asp?id=142
   


3. Please
   choose real companies to discuss.
   


4. Please
   don’t use more than one website
   on reference.


5. Need at least
   3-4 Reference.
   


6. Please use
   Harvard style.
   


7. 
   Referencing (in text citation)
   should be evident in the discussions.


8. 
   Free of plagiarism
   because my university using a very strike program in check called (TURNITIN) and its accurate.


9. 
   Plagiarism level allowed 5% only otherwise it will not acceptable.
   


10. Harvard style should be like this ((author name)( year) then( title of article) then (title of journals in Italic) then (volume number) then (part number) or issue number finally (pages number)..


11. This assignment for
    master degree please do your best effort to get A or B grade.
    

Please use in assignment the following:-

1. Introduction.(defined the main terms).


2. Body. (Discussion).


3. Conclusion.(summarize the main points).

1- Distinguish between the different types of costs that were examined this week, such as sunk costs, opportunity costs, and outlay costs? 2- What costs are relevant to decision making? 3- How do managers overcome the natural tendency to consider historical and sunk costs when evaluating business alternatives? Not: - this question are consist of three (3) parts please cover all these questions in this assignment in order to my requirements too Need about 500 words. My requirements. 1- It is MUST important to use my ATTACHED FILE as one reference. 2- USE THIS ARTICLE AS AN ADDITIONAL REFERENCE http://www.accountancy.com.pk/articles_students.asp?id=142 3- Please choose real companies to discuss. 4- Please don’t use more than one website on reference. 5- Need at least 3-4 Reference. 6- Please use Harvard style. 7- Referencing (in text citation) should be evident in the discussions. 8- Free of plagiarism because my university using a very strike program in check called (TURNITIN) and its accurate. 9- Plagiarism level allowed 5% only otherwise it will not acceptable. 10- Harvard style should be like this ((author name)( year) then( title of article) then (title of journals in Italic) then (volume number) then (part number) or issue number finally (pages number).. 11- This assignment for master degree please do your best effort to get A or B grade. Please use in assignment the following:- 1- Introduction.(defined the main terms). 2- Body. (Discussion). 3- Conclusion.(summarize the main points). Management Accounting for Decision Makers7th ed. By Atrill, P. & McLaney, E. (2012). Publication :- Harlow, England : Pearson Education Ltd. Managing Finance (MNGFIN) Week 2: Identifying and analysing costs Relevant costs for decision making Textbook reading (Atrill & McLaney: Ch. 2) In discussing financial and accounting figures, it is typical to concentrate on historical costs. These are the costs that are used on basic financial statements, such as balance sheets. However, these historical costs are just that—historical. They do little to help managers with decisions regarding the future of the organisation, as they have already occurred and thus, have little or no impact on future results. It is not to say that these costs are unimportant; they are simply not relevant for decision making. With regards to making decisions, managers need to be concerned with economic costs, such as opportunity costs. Such costs provide much more relevant information about possible decisions than historical costs and also give a basis with which to weigh the benefits of each alternative. The textbook reading for this topic discusses the relevant costs that managers must analyse, particularly opportunity and outlay costs. These costs put value on the next best alternative to a particular strategy or the money needed to pursue and achieve a strategy. Such costs must be relevant to that situation in order to be considered. By analysing the differences in relevant costs, managers are better able to discern what alternatives or strategies will create more value for the organisation and also prioritise those strategies so that resources can be properly allocated. The activities provided in the reading help to demonstrate how decisions are based on relevant costs while ignoring sunk costs and those costs that do not differentiate between choices. Relevant Costs for Decision-Making http://www.accountancy.com.pk/articles_students.asp?id=142 (This article discusses relevant and non-relevant costs with regards to decision making. The author also provides an extended example.) Fixed and variable costs Textbook reading (Atrill & McLaney: Ch. 3) When analysing costs, it is essential to know how they behave during normal operations. Some costs are constant and are incurred regardless of how much a company produces or sells. Costs such as rent, insurance, or staff salaries are generally steady even when output changes; therefore, these costs are normally classified as fixed. Other costs, such as materials and direct labour, fluctuate because of changes in output and are classified as variable. There are some costs that possess both fixed and variable characteristics and consequently do not fall easily into one category. In such instances, it is necessary to further examine the costs over a period of time in order to deduce which portion is fixed and which is variable. An example of a semi-fixed (or semi-variable) cost would be something that charges a fixed rate for a specified amount and then so much per unit after that. Cellular phone plans often have such costs with regards to minutes used or messages sent. The reading for this topic explores the nature of fixed, variable, and semi-fixed (semi-variable) costs. Within management accounting, the understanding of fixed and variable costs is essential. Fixed costs must be allocated to product lines, business units, or locations; however, there is much ambiguity as to how best to separate these costs. There are certain costs that spread over a wide range of operations within an organisation, and they may not be easily tagged to any one product, unit, or location. How best to divide up these costs is an issue for management accountants to decide—a decision that should not be taken lightly. As you will discover in examining break-even analysis, the amount of fixed costs associated with a product has a significant role in determining its measure of profitability. Break-even analysis Textbook reading (Atrill & McLaney: Ch. 3) As you previously learned, managers should concentrate on relevant costs. Classifying costs as fixed or variable allows organisations to better analyse performance and provide more applicable details for decision making. When examining the fixed- and variable-cost components of a product, one is better equipped to analyse the profitability of such product. The textbook reading provides graphs depicting sales revenues and costs (Figure 3.6). These graphs demonstrate how organisations initially lose money when selling a product because of the need to recoup the fixed costs incurred from just being in business. But as the organisation sells more, each unit sold contributes more towards meeting fixed costs until a break-even point (BEP) is reached. The BEP is where total revenue is equal to total costs. This analysis has been widely used and is simple to practice for determining whether a product will be profitable. Break-even (BE) analysis is also helpful for examining choices with regards to a particular product. An organisation may be considering modifying certain features of the product or using new equipment that would increase the fixed costs associated with it. By comparing the BEPs of each choice, the organisation is able to ascertain the contribution to profit made by each option and consequently determine which choices are viable. Managers are also able to evaluate the margins of safety between choices. Choices that greatly increase the BEP will require a higher level of sales and will generally carry more risk. Managers must decide what margin of safety is acceptable, as projects may increase BEPs but may also have long-term potential to increase value to the organisation. One of the most significant concepts with regards to BE analysis is the contribution margin. Because of the constant nature of fixed costs, we can further examine choices by looking at how much each unit contributes to profit. The contribution margin is the difference between the selling price per unit and the variable cost per unit. For example, a product sells for ₤10 per unit and has ₤6 of variable costs per unit. Therefore, each product sold has a contribution margin of ₤4, which means that ₤4 from each unit contributes to meeting the amount of fixed costs and, later, profit. Because fixed costs are constant between the alternatives, they are not particularly relevant in decision making. Examination of how much each product or project contributes to profit is more relevant. This begins to address the important area of marginal analysis, which is covered in the final topic for this week. Finally, the concept of operating gearing is important to consider within this topic as well. Operating gearing refers to the relationship between fixed costs and contribution. A case in which fixed costs are much higher in comparison to variable costs is said to have a high operating gearing. Figure 3.10 in the reading helps to demonstrate this concept further. Changing the level of operating gearing will result in profits being more or less sensitive to changes in the volume of activity. Higher operating gearing results in a more drastic change in profit when volume changes and lower operating gearing results in a less drastic change in profit given a change in volume. Organisations that have higher capital investment (fixed costs), such as airlines and telecommunication companies, tend to be highly operationally geared. Weaknesses of break-even analysis Textbook reading (Atrill & McLaney: Ch. 3) In examining break-even (BE) analysis, you may have noticed that it is a relatively simple technique. The simplicity lends itself to its widespread use; however, it also causes the technique to fall short with regards to in-depth analysis. Namely, BE analysis assumes that costs per unit, both fixed and variable, are held constant. While fixed costs remain constant over a certain range of production (or sales), they will change at some point as output continues to increase and places more demands on the organisation to add staff, purchase additional machinery, or build more plant space. Total variable costs in the analysis do change with changes in output; however, the variable cost per unit remains the same. Realistically, variable cost per unit will change as output increases due to such factors as bulk purchasing price discounts. While BE analysis is beneficial for examining profitability of a single product, this technique loses some of its effectiveness for organisations that provide multiple products or services. Although it may be possible to find contribution margins for each product, it is necessary to have an accurate representation of fixed costs to properly conduct the analysis. As previously discussed, in large organisations the allocation of fixed costs, or overhead costs, is not simple. As each organisation is free to allocate these costs in their own manner, subjectivity is introduced into the process, which may not provide for a true analysis of profitability. Marginal analysis Textbook reading (Atrill & McLaney: Ch. 3) Recall some information from previous topics covered this week: Managers should examine only relevant costs when making decisions. Only costs that differ between choices are to be considered relevant. In the short term, fixed costs are constant. From this information, we can deduce that fixed costs are generally not relevant to decision making because, in the short term, they are constant and will remain the same. More importantly, we need to examine the costs that change between alternatives or levels of production. These costs are known as marginal costs and represent the additional cost of producing one more unit of output. Marginal analysis is a very important concept with regards to examining and evaluating information. Examining marginal costs and revenues provides greater insight into how much value or wealth a project or alternative will contribute to the