Advance cost accounting Article Example | Topics and Well Written Essays - 500 words

Advance cost accounting - Article exampleHongren, Datar and bring up explain capital budgeting as having six stages that argon, in that order, identification, search, information acquisition, selection, financing and implementation and escort stages (7). Formal methods employed in capital budgeting that use incremental cash flows of potential projects include techniques such as discounted cash flow, internal step of return, equivalent annuity, net present evaluate, payback period and favorableness index. Essentially, through the discounted cashflow method, the expected outward and inward flow of cash in a project are calculated as if they took place together at one time so they can be averaged appropriately. The net present value and internal rate of return are methods of discounted cash flow, and the internal rate of return is a function of the expected net annual cash flow and present value annuity factor (Hongren, Datar & Foster 19). Compared to internal rate of return, net present value is more profitable because its end result is not expressed as a percentage but, rather, in dollars, and it provides the opportunity to agree individual projects. Further, it is applicable in situations in which the required rate of return of a project varies throughout its life. On the other hand, it is not possible to add or average a projects individual rate of return to derive internal rate of return of some(prenominal) combined projects (Hongren, Datar & Foster 22).Through the identification stage, the need to consider venturing into a new project is identified by the management, and several alternatives will be yielded in the search stage, although the focus will remain on a bad-tempered project (Hongren, Datar & Foster 8). Decisions deemed to be of a strategic nature call for the management to consider a wide scope of factors that cannot be easily estimated. While information will be acquired by the judicial system in