Managerial Accounting (Capital Budgeting Decision)

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Managerial accounting (capital budgeting decision)

Executive Summary

Capital budgeting decisions are one of the two decisive factors for the success of the company. A number of factors combine to make capital budgeting decisions are perhaps the most important decisions to be taken by financial managers. First, due to the fact that the results of capital decisions continue for many years, the decision maker loses some of its flexibility. The opportunity is also an important consideration in the capital budget, as capital assets should be ready for action when needed. Finally, the preparation of the capital budget is also important because the expansion of assets usually involves very considerable expense, before a company can spend a lot of money, must have sufficient funds available. This paper focuses on the evaluation and recommendation given to Twilight Acre Farms Limited regarding the purchase of machine.

Table of Content




Causes of Capital Spending1

Budget Preparation Process of Capital1

Cost analysis2

Relevant and Irrelevant cost3

Effect of eliminating the Existing Machine5

Assumptions made for fixed and variable cost6

State income without special order7

Analysis of the cost differential7

Statement of income with special order7

Monthly Cash budget after adopting the new machine8




Managerial accounting (capital budgeting decision)


Before recommendation any decision to the Twynstra, we have gaze the qualitative factors as well as quantitative factors. As we know that capital budgeting is the process of evaluating and selecting investment term extension cord that matches the business goals of maximizing the wealth of the owner. In the case of manufacturing enterprises, productive assets or fixed assets are those that generate the basis for the ability to generate profitability and company value (


Causes of Capital Spending

There are two types of expenditure: one is capital expenditure which is a disbursement made ??by the company and expected to receive a benefit in a period that goes beyond one year, on contrary to operational expenditure whose benefit is given for a time even less years. Spending on assets is considered in some cases as capital expenditure, these are made ??to expand, replace or renovate fixed assets or other benefits that seen the long term.

Budget Preparation Process of Capital

This consists of five distinct steps, yet interrelated, these are:

Generation of proposals: are given at all levels of the organization and are reviewed by the finance staff in order to maximize resources and minimize costs.

Review and Analysis: Performed a detailed analysis of the proposals and submits a report to decision makers.

Decision making: Homework is a very difficult, so it is usually delegated to the board of the enterprise or plant managers, who are based in the movements that are observed in the production lines.

Implementation: once it has been approved are made necessary expenses and start with the project.

Follow-up: the results are monitored and compared with actual costs to estimated benefits.

Cost analysis

Different costs for different purposes should be the basic concept for the study of management accounting or management. The relevant concept relevantly means, for both the relevance of cost and revenue data is determined by the purpose for which will be ...
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