CONTEMPORARY MANAGEMENT ACCOUNTING ISSUE

Contemporary Management Accounting Issue

Contemporary Management Accounting Issue

Task 1

Investment Turnover

Plows

Tractors

Combines

Investment turnover

$2

$1

$3

Return on Sales

Plows

Tractors

Combines

Return on sales

$0.45

$0.43

$0.40

Return on Investment

Plows

Tractors

Combines

ROI

800,001.02 152,500.53 1,435,001.09

The data relates to an investment decision, which therefore forms the unit of analysis. The extent of scanning involved in making the decision and its subsequent quality will be measured. The decision as the unit of analysis is chosen to enhance internal validity as choosing the manager or the organization which makes the decisions will only confuse the issues to be addressed.

This is due to the fact that managers and organizations make many decisions, some would involve a great amount of scanning, and some none at all, and the associated quality is high for some and low in others (Petty, 2000, 12). Therefore, isolating the focus on a specific decision, and measuring the associated scanning behaviour and quality, will strengthen the validity of the relationship thus established. The extent of scanning done by managers is one of the common dimensions of scanning behaviour used in earlier studies.

Most of the previous research conceptualized the amount of environmental scanning based on frequency of scanning; interest in scanning and the time spend in scanning the environment. However, for the present study, the concept of the amount of scanning is operational by measuring the amount of information the managers scan on each type of information needed for the decision they have made. Each type of information scanning is referred to as the scope of scanning. The capital investment decisions are mainly governed by the process of ranking and identifying the capital investments of the firm. The firm needs to decide which of the given investments will ensure the most value to the business. The decisions of capital investment often suffer from a number of constraints. The amount of capital that a firm collects is limited and it brings down the constraint on the choice of the firm over various project investments. As the debt of the firm is increased, the debt-equity ratio of the firm also gets increased and hence it becomes difficult for the business to raise more debts. The decision of project ranking plays significant role in the decisions of capital investment. Depending on the various projects the firm is having at a certain period of time, the firms prioritize the projects.

Task 2

Financial decision making and capital budgeting are a very ...