Management Accounting Decision-Making


Company XYZ is a historic company.Business increasing competitive with the rapid development of the global economy. As a Management accountant of XYZ, it is significant to survey and research company's performance for deciding and evaluating which is the major capital investment project company should noteworthiness.There are two conditions should be taken into account.In order to make top manager satisfied who will approve the investment project.Accountant should consider how to achieve an average Accounting Rate of Return of 15%. Moreover, company must receive enough payback in two years because of the major available cash is come from intracompany. These conditions must to satisfy at the same time to ensure the plan implements smoothly.Potential project should be evaluated from the date prepare by middle managers.To make shareholder's equity maximize is the final purpose, through forecasting operating costs, incremental revenues, residual values and capital outplays.There is a vital limitation for XYZ that it only develops and research in its own country. This is definitely not a successful long-term plan for this company to deal with business increasing competition.Therefore, XYZ was taking up research a series project that they did not have enough experience, involves developing new international market and new technology.


Accounting Rate of Return(ARR) is measured by accounting profit which has already taken into account the operating cash flow after depreciation. Management accountant should accept the project when Accounting Rate of Return is higher than company's original target.There is some advantage of Accounting Rate of Return. Firstly, it is easy to calculate and understand. Secondly, it is widely used to show how attractive an investment project is.
Although ARR could provide a lot of useful information about the company, but it still has obvious drawbacks. Firstly, it not only based on cash flow lead to being controlled...