O'Reilly logo

Management Accounting Best Practices: A Guide for the Professional Accountant by Steven M. Bragg

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

Chapter 2

Capital Budgeting Decisions

The accountant is usually trained in the use of discounted cash flows to analyze funding requests for capital projects. A newer approach is constraint management, which instead focuses attention on allocating funding to bottleneck (constrained) operations. Both capital budgeting methodologies are presented in this chapter.

If the accountant were to use constraint-based capital budgeting, some key questions would involve how to determine the cost of a bottleneck operation, how to locate that operation, whether investments should be made in the operation, and when investments should be made outside of the bottleneck operation.

If the accountant were to instead use the traditional discounted cash flow method, some key questions would involve how to calculate and use the cost of capital, how to derive a project's net present value, and when to use payback periods and post-completion project analyses.

This chapter provides answers to all of these key questions. The following table itemizes the section number in which the answers to each question can be found:

Section Decision
2-1 How does a constrained resource impact capital budgeting decisions?
2-2 What is the true cost of a capacity constraint?
2-3 How do I identify a constrained resource?
2-4 When should I invest in a constrained resource?
2-5 Should I increase sprint capacity?
2-6 How closely should I link capital expenditures to strategy?
2-7 What format should I use for ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required