Managerial accounting Essay Example | Topics and Well Written Essays - 2750 words

Managerial accounting - Essay Example It  states  that, in measuring net income  for an  accounting period, the  costs  incurred in that  period  should be matched against the revenue generated in the same period† (Business Dictionary.com). Decision relevance on the other hand focuses on those cost and revenues aspects that the conventional accounting principle of matching may ignore. The main difference between the fundamental accounting principle and the decision relevance theory is that the former tends to focus on the amount actually paid for any expense incurred whilst ignoring any other incremental costs that may be incurred in the future if any company wishes to undertake any given project. Besides such issues, the conventional accounting principle also ignores the impact of opportunity costs. Decision relevance on the other hand tries to focus on all such costs which might be incurred due to the incidence of any given project. Opportunity costs are also given a high regard in decision releva nce and they are considered as an important aspect in any given decision. According to the conventional accounting principle, Option A seems to be more appropriate as it reduces the loss which is to be endured by the company. Under this principle, the company bears a loss of ?31.9 million (?31,966,666.66) and if the company follows Option B it faces a loss of around ?33.2 million (33,200,000). There is an evident saving of ?1.2 million (?1,233,334) if Option A is selected under the Conventional accounting principle. Option A leads the company to close all its operations and tend to receive the Revenue from the existing catapults produced. Under Option A the existing catapults produced by the company would generate ?15 million and the costs incurred in this regard would be approximately ?49.6 million (?49,666,666). On the other hand the revenue generated under Option B would be ?35 million (?35,000,000) which would be much higher than the revenue generated from Option A, this increas ed revenue would be generated because of the increased sales of the existing 500 units of catapults and the extra 500 units to be produced by the company. The costs to be endured under Option B are ?68.2 million (?68,200,000). The increased revenue generated by selling 1000 units at a higher rate are over shadowed by the increased costs tolerated by the company. Such increased costs have put up extra burden on the incremental revenue generated from Option B. As a result of these inflated costs, the loss generated through Option B would be References Business Dictionary.com, â€Å"