Financial Decision Making Management Accounting

Question: Discuss abot the Financial Decision Making for Management Accounting. Answer: The management accounting has one of the simplest analytical tool to determine the changes in the operating income of the company by analyzing the volume and cost. This is done with the help of cost volume profit analysis. It helps in monitoring the performance of the organization and depicting the financial overview as the appropriate cost structure is chosen by the company using this analysis. Therefore, the cost volume profit analysis helps in the decision making process of the managers. However, simple the analytical tool such as CVP is, it has the advantages and the disadvantages both (Cumby 2013). Most of the criticisms are related to the basic assumptions that are assumed by the analysis. The total revenue and total cost curve has curvilinear nature and the ignorance of the feature of these curves when performing CVP analysis is the reason for difference between the price theory and CVP analysis. It also assumes that the efficiency factors or the elasticity of demand and changes in the volume are independent of each other. The following case depicts that the analysis of CPV is limited to one time period. The focus of the CVP analysis is given on the sales revenue and the operating expenses (Kim 2015). Therefore, the most important that are taken by the managers are overlooked as the CVP takes into account only the revenue and the operating expenses other things are not needed to calculate the CVP. For example, the CVP analysis has been done in order to widen the impact of the compensation schemes while targeting the level of the profits for the business (Cumby 2013). Therefore, the CVP analysis in this case is not of utmost importance, as it does not take into account the compensation schemes for the analysis. Reference Cumby, J.A., 2013. Business 2101: managerial accounting. Program 07-01. Cost volume profit analysis. Kim, S.H., 2015. Cost-Volume-Profit Analysis for a Multi-Product Company: Micro Approach.International Journal of Accounting and Financial Reporting,5(1), pp.23-35.