The Steps In Management's Decision-Making Process

Be7 1 The Steps In Managements Decision Making Process Are Listed In

The assignment involves understanding the steps in management's decision-making process, arranging these steps in the correct order, comparing alternatives based on incremental analysis which includes revenues, costs, and net income, evaluating various statements related to decision-making and incremental analysis to identify true or false assertions, and applying incremental analysis to specific business scenarios such as accepting an order or choosing between product kits. Additionally, the task requires providing a comprehensive, about 1000-word academic paper that discusses these topics in depth, supported by at least 10 credible references, including citations within the text.

Sample Paper For Above instruction

Management’s decision-making process is central to the effective operation and strategic positioning of organizations. It involves a series of systematic steps designed to ensure that managerial decisions are well-informed and aligned with organizational goals. The primary steps include identifying the problem or opportunity, gathering relevant data, developing alternatives, analyzing these alternatives through tools like incremental analysis, making the decision, and reviewing the results to inform future decisions (Drury, 2018). Proper sequence is fundamental; for instance, identifying the problem must precede evaluating potential actions, which leads logically to decision-making, and finally reviewing the outcome to assess success or failure (Shim & Siegel, 2019). These steps facilitate rational decision-making and improve organizational performance by minimizing biases and focusing on data-driven choices.

Incremental analysis plays a vital role in managerial decision-making, especially when selecting between alternative courses of action. This analysis involves examining the additional revenues and costs that will be incurred or saved if a particular decision is made. For instance, in comparing Alternative A with revenues of $160,000 and costs of $100,000, and Alternative B with revenues of $180,000 and costs of $125,000, it becomes clear that alternative B generates a higher revenue, but also incurs higher costs (Horngren, Sundem, & Stratton, 2018). The incremental revenues of $20,000 (from $160,000 to $180,000), incremental costs of $25,000, and resulting decrease in net income highlight that the decision requires careful consideration of whether the additional revenue justifies the increased costs. This approach ensures that only relevant data influence the decision, leading to more effective resource allocation.

Understanding the validity of statements about decision-making and incremental analysis is essential for managerial accuracy. Statements such as “The first step in management’s decision-making process is determining and evaluating possible courses of action” are true, as this step logically follows problem identification and precedes decision-making (Anthony & Govindarajan, 2019). Conversely, statements claiming that only variable costs change under alternative options are false since some fixed costs may also be affected, such as opportunity costs or unavoidable fixed expenses. Other statements about the role of accounting, the nature of costs and revenues, and the functions of incremental analysis reflect a fundamental understanding of managerial accounting principles, which emphasize relevance and necessity for decision-making (Garrison, Noreen, & Brewer, 2019).

In assessing whether Klean Fiber Company should accept the Army’s order to produce 250,000 Y-Go undergarments, incremental analysis reveals that only variable manufacturing costs and direct materials, labor, and overhead, are relevant. Since the unit costs in the current operation amount to $5.50, the variable costs sum to $5.25 per unit, and the Army proposes to pay an additional $1 per unit to cover all other costs and profit, this extra payment effectively covers the variable costs plus a contribution margin. Operating below full capacity, the company must evaluate whether accepting the order would increase overall profitability. Literature suggests that such special orders should be accepted if the incremental revenue exceeds the incremental costs, especially when fixed costs are already covered (Kaplan & Atkinson, 2015). Given the offered price and additional payment, accepting the order would likely be profitable, as it uses idle capacity without affecting regular sales.

Similarly, Rachel Rey’s decision about which basket kit to produce involves a comparative analysis based on incremental costs and revenues. The basic kit costs $14 and sells for $30, resulting in a contribution margin of $16 per unit. The Stage 2 kit costs more to produce—adding her time valued at $18—yet sells for $35. Since she can produce two Stage 2 kits from one basic kit at a cost of $14 (for the basic materials) plus her time valued at $18, the incremental cost per Stage 2 kit includes her time proportionally, which effectively reduces her per-unit cost (Garrison et al., 2019). The decision to carry one or the other hinges on the incremental profit per unit. The analysis indicates that producing the Stage 2 kits yields a higher contribution margin, suggesting that the shop should focus on stocking the more profitable dyed and cut reeds, provided demand exists, and that it optimizes space and resources for maximum profit.

In conclusion, effective management decision-making relies on a structured process of identifying problems, evaluating alternatives, and reviewing results. Incremental analysis is a powerful tool for selecting between options, as it isolates relevant financial data, minimizing biases from irrelevant costs or revenues. Case applications such as accepting special orders or choosing product lines demonstrate the practical significance of these principles. Managers must understand the theoretical foundations and apply them diligently to enhance profitability, strategic positioning, and organizational efficiency. As businesses face increasingly complex decisions, the role of systematic analysis supported by managerial accounting remains crucial for sustainable success.

References

• Anthony, R. N., & Govindarajan, V. (2019). Management Control Systems. McGraw-Hill Education.
• Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2019). Managerial Accounting. McGraw-Hill Education.
• Horngren, C. T., Sundem, G. L., & Stratton, W. O. (2018). Introduction to Management Accounting. Pearson.
• Kaplan, R. S., & Atkinson, A. A. (2015). Advanced Management Accounting. Pearson.
• Shim, J. K., & Siegel, J. G. (2019). Budgeting and Financial Management for Nonprofit Organizations. Jossey-Bass.
• Drury, C. (2018). Management and Cost Accounting. Cengage Learning.