ENGINEERING ECONOMICS AND FINANCIAL ACCOUNTING EBOOK

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Page viii - Political Economy or Economics is a study of mankind in the ordinary business of life; it examines that part of individual and social action which is most . QUALITY CERTIFICATE. This is to certify that the e-course material. Subject Code: MG Subject.: Engineering Economics and Financial Accounting. Class. mg engineering economics financial accounting. 22EF45B5F91E9F0D5FDD. Recognizing the pretentiousness ways to acquire this ebook.


Engineering Economics And Financial Accounting Ebook

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The book will be particularly suitable for courses in Managerial Economics and Financial Accounting as part of an engineering degree education at. EPUB Ebook here { tyoususnappsave.ga }. . Engineering Economics & Financial Accountingment Ee&fa July ; 3. . ACCOUNTANCY Accountant provides accounting information relating to cost, revenues. UNIT I-MGEngineering Economics and Financial Accounting Notes - Free download as PDF File .pdf), Text File .txt) or read online for free.

Supply analysis deals with various aspects of supply of a commodity. Certain important aspects of supply analysis are: Supply schedule, curves and function. Law of supply and its limitations, Elasticity of supply and Factors influencing supply.

Profit Management: Business firms are generally organized for the purpose of making profits and, in the long run, profits provide the chief measure of success. In this connection, an important point worth considering is the element of uncertainty existing about profits because of variations in costs and revenues which, in turn, are caused by factors both internal and external to the firm.

Capital Management: Capital management implies planning and control of capital expenditure. Opportunity Cost Principle: By the opportunity cost of a decision is meant the sacrifice of alternatives required by that decision.

Thus, it should be clear that opportunity costs require ascertainment of sacrifices.

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If a decision involves no sacrifice, its opportunity cost is nil. For decision-making, opportunity costs are the only relevant costs. The opportunity cost principle may be stated as under: The cost involved in any decision consists of the sacrifices of alternatives required by that decision.

If there are no sacrifices, there is no cost. Page 7 of 18 Unit- I 2. Incremental Principle: Incremental concept involves estimating the impact of decision alternatives on costs and revenues, emphasizing the changes in total cost and total revenue resulting from changes in prices, products, procedures, investments or whatever may be at stake in the decision.

The two basic components of incremental reasoning are: Incremental cost and incremental revenue. Incremental cost may be defined as the change in total cost resulting from a particular decision. Incremental revenue is the change in total revenue resulting from a particular decision. Principle of Time Perspective: The economic concepts of the long run and the short run have become part of everyday language.

Managerial economics are also concerned with the short-run and long-run effects of decisions on revenues as well as costs. The really important problem in decisionmaking is to maintain the right balance between the long-run and the short-run considerations.

A decision may be made on the basis of short-run considerations, but may as time elapses have longrun repercussions which make it more or less profitable than it at first appeared. Discounting Principle: One of the fundamental ideas in economics is that a rupee tomorrow is worth less than a rupee today. This seems similar to saying that a bird in hand is worth two in the bush.

If a decision affects costs and revenues at future dates, it is necessary to discount those costs and revenues to present values before a valid comparison of alternatives is possible. Equi-marginal Principle: This principle deals with the allocation of the available resources among the alternative activities.

According to this principle, an input should be so allocated that the value added by the last unit is the same in all cases. This generalization is called the equi-marginal principle.

UNIT I-MG2452-Engineering Economics and Financial Accounting Notes

Managerial Economics and Economics: Managerial Economics has been described as economics applied to decision-making. Economics has two main divisions: micro-economics and macro-economics. Micro-economics has been defined as that branch where the unit of study is an individual or a firm. Macro-economics, on the other hand, is aggregative in character and has the entire economy as a unity of study. Managerial Economics and statistics: Managerial Economics employs statistical methods for empirical testing of economic generalizations.

These generalizations can be accepted in practice oly when they are checked against the data from the world of reality and are found valid. Managerial Economics and Mathematics: Mathematics is yet another important tool-subject closely related to Managerial Economics.

This is because Managerial Economics is metrical in character, estimating various economics relationships, predicting relevant economic quantities and using them in decision-making and forward planning. Managerial Economics and Accounting: Managerial Economics is also closely related to accounting which is concerned with recording the financial operations of a business firms.

Indeed, accounting information is one of the principal sources of data required by a managerial economist for his decision-making purpose.

Managerial Economics and Operations Research: The significant relationship between managerial economics and operations research can be highlighted with reference to certain important Page 8 of 18 Unit- I problems of managerial economics which are solved with the help of or techniques.

The problems are: allocation problems, competitive problems, waiting line problems and inventory problems. Managerial Economics involves application of economic principles to the problems of the firm. Economics deals with the body of the principles itself. Managerial Economics is micro-economic in character; Economics is both macro-economic and micro-economic.

Managerial Economics, though micro in character, deals only with firms and has nothing to do with an individuals economic problems. But micro-Economics as a branch of Economics deals with both economics of the individual as well as economics of the firm. Under Micro-Economics as a branch of Economics, distribution theories, viz. Thus, the scope of Economics is wider than that of Managerial Economics.

Economic theory hypothesizes economic relationships and builds economic models but Managerial Economics adopts, modifies and reformulates economic models to suit the specific conditions and serves the specific problem solving process. Thus Economics gives the simplified model, whereas Managerial Economics modifies and enlarges it.

Economic theory makes certain assumptions whereas Managerial Economics introduces certain feedbacks such as objectives of the firm, multi-product nature of manufacture, behavioural constraints, environmental aspects, legal constraints, constraints on resource availability, etc.

Decision Making and Forward Planning: Managerial economists play a vital role in managerial decision making and forward planning. Inventory Schedules of the Firm: He plays an effective role in price fixation, location of a plant, quality improvement, etc. Demand Forecasting: The most important role of the managerial economist relates to demand forecasting.

Economic Analysis: The managerial economists undertake an economic analysis of the industry. Price Fixation: Another role played by a managerial economist is to fixing prices for new as well as existing products of a firm. Environmental Issues: A managerial economist is also undertakes the analysis of environmental issues. Page 9 of 18 Unit- I 7. Cost of the Firm: He is also responsible and playing a vital role in input cost of the firm.

Governments Economic Policies: Lastly, managerial economist has also to keep in touch with the governments economic policies and the central banks monetary policies annual budgets of the government. Thus every decision making situation falls into one of the four categories that exist along a certainty continuum namely Certainty, Risk, Uncertainty and Ambiguity 1. Certainty: This is a state of certainty that exists only when the decision maker knows the available alternatives and the conditions and consequences of those actions.

Making decisions under certainty assumes that the decision maker has all the necessary information about the problem situation. Risk: A state of risk exists when the decision maker is aware of all the alternatives, but is unaware of their consequences. In this situation, the decision maker at best can make guess as to which alternative to choose.

The decision in order risk usually involves clear and precise goals and good information, but future outcomes of the alternatives are just not known to a degree of certainty. However, sufficient information is available to allow the decision maker to ascribe the probability of successful outcomes for each alternative.

Uncertainty: Most significant decisions made in todays complex environment are formulated under a state of uncertainty, where there is an unawareness of all the alternatives and so also the outcomes even for the known alternatives. Such decisions demand creativity and the willingness to take a chance in the face of such uncertainties. In such situations, decision makers do not even have enough information to calculate degree of risk.

Ambiguity: The most difficult decision situation is the state of ambiguity, in which the decision problems are not at all clear. The alternative courses of action are difficult to identify, and the information about consequences is not available. In this state, nothing is known for sure and the risk of failure is quite high. Profit maximization means the largest absolute amount of profits over a time period, both short-term. And long term. The short run is a period where adjustments cannot be made quickly in matters of supply and demand.

Long run however enables adjustment to changed conditions. Profit can be defined as the difference between total revenue TR and total cost TC. Separation of Ownership from Control: The rise of corporate firm of organization has resulted in a separation of ownership and control. Ownership is vested with the shareholders and control is wielded by the managers.

It has not been empirically proved that shareholders are more concerned with profitability than anything else. Page 10 of 18 Unit- I 2.

Difficulties in Pursuing Profit Maximization: The modern firm faces lot uncertainties. As a result, short run profit maximizing behaviour is subordinated to the more important objective of long-run survival of the firm, for example, the firms objective to pursue good-will in the long-run may clash with short-run profit objective. Problems in the Measurement of Profit: There are some problems about the measurement of profit as a measure of firms efficiency.

Profit may be the result of imperfection in the market and profits may be the reward of monopolistic exploitation. Worse still, profit measurement process itself is dubious. Social responsibility of the firm: he firm is now-a-days not just an economic entity concerned with production or sales alone.

The firm owes a responsibility to offer good, well paid jobs for employees, to provide efficient services to customers. In short the firm has a social responsibility beyond profit maximization. Deliberate limitation of profits: Firms may deliberately show lesser profits in the short run in order to discourage labourers from asking for higher wages or to discourage entry of new firms. Indeed, accounting information is one of the principal sources of data required by a managerial economist for his decision-making purpose.

Managerial Economics and Operations Research: The significant relationship between managerial economics and operations research can be highlighted with reference to certain important Page 8 of 18 Unit- I.

The problems are: Managerial Economics involves application of economic principles to the problems of the firm. Economics deals with the body of the principles itself. Managerial Economics is micro-economic in character; Economics is both macro-economic and micro-economic. Managerial Economics, though micro in character, deals only with firms and has nothing to do with an individuals economic problems.

But micro-Economics as a branch of Economics deals with both economics of the individual as well as economics of the firm. Under Micro-Economics as a branch of Economics, distribution theories, viz. Thus, the scope of Economics is wider than that of Managerial Economics.

Economic theory hypothesizes economic relationships and builds economic models but Managerial Economics adopts, modifies and reformulates economic models to suit the specific conditions and serves the specific problem solving process. Thus Economics gives the simplified model, whereas Managerial Economics modifies and enlarges it. Economic theory makes certain assumptions whereas Managerial Economics introduces certain feedbacks such as objectives of the firm, multi-product nature of manufacture, behavioural constraints, environmental aspects, legal constraints, constraints on resource availability, etc.

Decision Making and Forward Planning: Managerial economists play a vital role in managerial decision making and forward planning. Inventory Schedules of the Firm: He plays an effective role in price fixation, location of a plant, quality improvement, etc. Demand Forecasting: The most important role of the managerial economist relates to demand forecasting. Economic Analysis: The managerial economists undertake an economic analysis of the industry. Price Fixation: Another role played by a managerial economist is to fixing prices for new as well as existing products of a firm.

Environmental Issues: A managerial economist is also undertakes the analysis of environmental issues. Page 9 of 18 Unit- I.

Cost of the Firm: He is also responsible and playing a vital role in input cost of the firm. Governments Economic Policies: Lastly, managerial economist has also to keep in touch with the governments economic policies and the central banks monetary policies annual budgets of the government. Thus every decision making situation falls into one of the four categories that exist along a certainty continuum namely Certainty, Risk, Uncertainty and Ambiguity 1. This is a state of certainty that exists only when the decision maker knows the available alternatives and the conditions and consequences of those actions.

Making decisions under certainty assumes that the decision maker has all the necessary information about the problem situation. A state of risk exists when the decision maker is aware of all the alternatives, but is unaware of their consequences.

In this situation, the decision maker at best can make guess as to which alternative to choose.

The decision in order risk usually involves clear and precise goals and good information, but future outcomes of the alternatives are just not known to a degree of certainty.

However, sufficient information is available to allow the decision maker to ascribe the probability of successful outcomes for each alternative. Most significant decisions made in todays complex environment are formulated under a state of uncertainty, where there is an unawareness of all the alternatives and so also the outcomes even for the known alternatives.

Such decisions demand creativity and the willingness to take a chance in the face of such uncertainties. In such situations, decision makers do not even have enough information to calculate degree of risk. The most difficult decision situation is the state of ambiguity, in which the decision problems are not at all clear.

The alternative courses of action are difficult to identify, and the information about consequences is not available. In this state, nothing is known for sure and the risk of failure is quite high. Profit maximization means the largest absolute amount of profits over a time period, both short-term. And long term. The short run is a period where adjustments cannot be made quickly in matters of supply and demand.

Long run however enables adjustment to changed conditions. Profit can be defined as the difference between total revenue TR and total cost TC. Separation of Ownership from Control: The rise of corporate firm of organization has resulted in a separation of ownership and control. Ownership is vested with the shareholders and control is wielded by the managers.

It has not been empirically proved that shareholders are more concerned with profitability than anything else. Difficulties in Pursuing Profit Maximization: The modern firm faces lot uncertainties. As a result, short run profit maximizing behaviour is subordinated to the more important objective of long-run survival of the firm, for example, the firms objective to pursue good-will in the long-run may clash with short-run profit objective.

Problems in the Measurement of Profit: There are some problems about the measurement of profit as a measure of firms efficiency. Profit may be the result of imperfection in the market and profits may be the reward of monopolistic exploitation. Worse still, profit measurement process itself is dubious. Social responsibility of the firm: The firm owes a responsibility to offer good, well paid jobs for employees, to provide efficient services to customers.

In short the firm has a social responsibility beyond profit maximization. Deliberate limitation of profits: Firms may deliberately show lesser profits in the short run in order to discourage labourers from asking for higher wages or to discourage entry of new firms. Limited profits may be shown to prevent the government from taking over the business. Aversion for business expansion: Profit maximization requires business expansion and it means additional risk and responsibility. Businessmen may be satisfied with the prevent level of profit and may not expand.

Profit is indispensable for firms survival: The survival of all the profit-oriented firms in the long run depends on their ability to make a reasonable profit depending on the business conditions and the level of competition.

Achieving other objectives depends on firms ability to make profit: Many other objectives of business firms have been cited in economic literature, e. Evidence against profit maximization objective not conclusive: Profit maximization is a timehonored objective of business firms.

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Although this objective has been questioned by many researchers, the evidence against it is not conclusive or unambiguous. Profit maximization objective has a greater predicting power Compared to other business objectives, profit maximization assumption has been found to be a much more powerful premise in predicting certain aspects of firms behaviour.

Profit is a more reliable measure of firms efficiency: Thought not perfect, profit is the most efficient and reliable measure of the efficiency of a firm. Baumol has postulated seller revenue maximization approach as an alternative to profit maximization objective.

The factors which explain the pursuance of this objective are following: Page 11 of 18 Unit- I. Financial institutions evaluate the success and strength of the firm in terms of rate of growth of its sales revenue. Empirical evidence shows that the stock earnings and salaries of top management are correlated more closely with sales than with profits.

Increasing sales revenue over a period of time gives prestige to the top management, but profits are enjoyed only by the shareholders. Growing sales means higher salaries and better terms. Hence sales revenue maximizations results in a healthy personnel policy.

It is seen that managers prefer a steady performance with satisfactory profits than spectacular profits year after year. They will be criticized if spectacular profits decline. Hence they may prefer a safe and steady performance with satisfactory profits but good sales.

Large and increasing sales help the firm to obtain a bigger market share which gives it a greater competitive power. Sales maximization goal is subject to a minimum profit constrain. Advertisement is a major instrument of sales maximization i. Advertisement costs are independent of production costs. Price of the product is assumed to be constant. His theory is more consistent with observed behavior. In the traditional theory changes in fixed costs do not influence output or prices except for fixing the breakeven point.

But according to Baumol a firm which experiences any increase in fixed costs will try to reduce them or pass them on to the consumer in the form of higher prices, through large scales. This theory also establishes that businessmen may consider non-price competition through sales maximization to be the more advantageous alternative. However, Baumols theory does not explain how the firms maximize their sales volume within a profit constraint.

Further it explains business behavior, without elaborating the mechanism by which they try to find new alternative. Page 12 of 18 Unit- I. In simple words, a firms growth rate is balance when demand for its product and supply of capital to the firm increase at the same rate.

The two growth rates are according to Marris, translated into utility functions: The managers utility function Um and owners utility Uo may be satisfied as follows. Therefore, maximization of Uo means maximization of demand for firms product or growth of capital supply. According to Marris, by maximizing these variables, managers maximize both their own utility function and that of the owners.

The managers can do so because most of the variables e. Maximization of these variables depends on the maximization of the growth rate of the firms. The managers, therefore, seek to maximize a steady growth rate. Marriss theory, though more rigorous and sophisticated than Baumols sales revenue maximization, has its own weaknesses.

Like Baumol and Marris, Willamson argues that managers have discretion to pursue objectives other than profit maximization. The managers seek to maximize their own utility function subject to a minimum level of profit. Managers utility function U is expresses as: According to Williamsons theory managers maximize their utility function subject to a satisfactory profit. A minimum profit is necessary to satisfy the shareholders or else managers job security is endangered.

The utility functions which managers seek to maximize include both quantifiable variables like salary and slack earnings, and non-quantitative variable such as prestige power, status, job security, professional excellence, etc.

The non-quantifiable variables are expresses, in order to make them operational, in terms of expense preference defined as satisfaction derived out of certain types of expenditures such as slack payments , and ready availability of funds for discretionary investments. Williamsons theory suffers from certain weakness. His model fails to deal with problem of oligopolistic interdependence.

Williamsons theory is said to hold only where rivalry between firms is not strong. In case of strong rivalry, profit maximization is claimed to be a more appropriate hypothesis. Thus, Williamsons managerial utility function too does not offer a more satisfactory hypothesis than profit maximization. Satisfying behaviour or satisfying behaviour. Simon had argued that the real business world is full of uncertainly; accurate and adequate data are not readily available; where data are available managers have little time and ability Page 13 of 18 Unit- I.

Nor do the firms seek to maximize sales, growth or anything else. Instead they seek to achieve a satisfactory profit a satisfactory growth, and so on. This behaviour of firms is termed as Satisfaction Behaviour. Cyert and March added that, apart from dealing with an uncertain business world, managers have to satisfy a variety of groups of people-managerial staff, labour, shareholders, customers, financiers, input suppliers, accountants, lawyers, authorities etc. All these groups have their interest in the firms-often conflicting.

The managers responsibility is to satisfy them all.

Thus, according to the Cyert-March, firms behaviour is satisfying behaviour. The satisfying behaviour implies satisfying various interest groups by sacrificing firms interest or objective. The underlying assumption of Satisfying Behaviour is that a firm is a coalition of different groups connected with various activities of the firms, e. All these groups have some kind of expectations-high and lowfrom the firm, and the firm seeks to satisfy all of them in one way or another in sacrificing some of its interest.

In order to reconcile between the conflicting interests and goals, managers form an aspiration level of the firm combining the following goals: These goals and aspiration level are set on the basis of the managers past experience and their assessment of the future market conditions.

The aspiration levels are modified and revised on the basis of achievements and changing business environment. The behavioural theory has, however, been criticized on the following grounds. First, though the behavioural theory deals realistically with the firms activity, it does not explain the firms behaviour under dynamic conditions in the long run. Secondly, it cannot be used to predict exactly the future course of firms activities; thirdly, this theory does not deal with the equilibrium of the industry.

Fourthly, like other alternative hypotheses, this theory too fails to deal with interdependence of the firms and its impact on firms behaviour. Risk of Market Fluctuation: General economic conditions are rarely stable. Firms face booms and depressions. Though with the help of certain forecasting techniques the firm can somewhat hedge itself against cyclical fluctuation, but there is no way the firm can generally know with certainty the timing and volatility of changes.

The firm is, therefore, unstable to completely prepare itself for these changes. Risk of Industry Fluctuations: There may be fluctuations specific to the industry, which are least as uncertain and may not always coincide with those of the overall market.

Competition risks: These are the risk arising from the policy changes of the rivals, which include things like changes in prices, product line, advertisement expenditure, etc. Risk of technological change: This is also called the risk of obsolescence, which grows with advancement of an economy. These risks arise from the possibility of newly installed machinery becoming obsolete with the discovery of new and more economical process of production.

Risk of taste fluctuation: In many cases, vagaries of consumer demand create uncertain conditions. Successful product of one season may become discarded in the next season.

These risks are most common in fashion and entertainment industries.

Page 14 of 18 Unit- I. Risk of cost fluctuation: Unless contractually agreed upon, the future prices of labour, material etc. Thus estimates of future expenditure are subject to uncertainty. Risk of public policy: Government policy regarding business undergoes a change over time, some of which cannot be precisely predicted.

These relate to price control, foreign trade policy, corporate taxation etc. A decision-maker is risk-neutral if each added rupee of wealth gives him the same additional utility.

A decision-maker is considered risk-averse if addition of each successive rupee to his wealth gives him lesser utility than the earlier rupee. A decision-maker is considered as risk-preferrer when addition of each successive rupee to decision-makers wealth gives him greater utility each time.

Selection process: Decision making is a selection process. The best alternative is selected out of many available alternatives. Goal-oriented process: Decision making is goal-oriented process. Decisions are made to achieve some goal or objective. End process: Decision making is the end process. It is preceded by detailed discussion and selection of alternatives. Human and Rational process: Decision making is a human and rational process involving the application of intellectual abilities.

It involves deep thinking and foreseeing things. Dynamic process: Decision making is a dynamic process. An individual takes a number of decisions each day. Decision making is situational. A particular problem may have different decisions at different times, depending upon the situation. Continues or Ongoing process: Decision making is a continuous or ongoing process. Managers have to take a series of decisions on particular problems.

Freedom to the decision makers: Decision making implies freedom to the decision makers regarding the final choice.

It also involves the using of resources in specified ways. Positive or Negative: Decision may be positive or negative. The money market has traditionally been defined as the market for short-term marketable debt instruments, such as commercial paper CP and treasury bills TBs. It is much more than this.

This book presents an introduction to central banking and monetary policy. This textbook will provide a greater understanding of technology-based entrepreneurship in the emerging knowledge economy. Finance sector decisions have a decisive impact on well-being. The authors present approaches to monetary management in both closed and open economies that highlight major policy dilemmas.

One of the great mysteries and elegant features of the financial system in general, and of the banking sector in particular, is the creation of new money. This book attempts to present a theoretical and practical analysis in microeconomics, commencing with consumer preferences and production and cost theory. This book is aimed at readers who - are not economists but want to understand fundamental economic concepts in an easy and straight-forward way.

This is a book of papers which endeavour to dispel the many misleading notions in respect of money creation. Learn calculus on your mobile device! This ebook integrates text with online video to enable learning anywhere, anytime on smart phones, tablets and laptops.

This book consists of ten articles, which contribute to a coherent approach making actual policies understandable as path dependent European narratives. After reading the theory book about Microeconomics it is time to test your knowledge to make sure that you are well prepared for your exam. By following the same structure as the companion text, this book of exercises and solutions tests your knowledge of Strategic Financial Management.

The book provides international readers with abundant colorful stories regarding to recent developments of China in three basic aspects of industrialization, urbanization and globalization. This book covers the changes that have enveloped the Indian business landscape in the last two decades. The Neoclassical Growth Model and Ricardian Equivalence presents two fundamental theories in microeconomics to readers who are familiar with essential economic theories and debates.

This book critically reviews literature on business cycles and financial crises. This free book critically evaluates working capital management and the strategic marketing function of credit terms within a theoretical context of wealth maximisation and empirical research.Managerial Economics and Accounting: Managerial Economics is also closely related to accounting which is concerned with recording the financial operations of a business firms.

Fullest possible use must be made of the available resources. It is preceded by detailed discussion and selection of alternatives.

Production Planning and Control. The Advanced Macroeconomics book is useful to policy makers, planners, industry and academicians. In case of strong rivalry, profit maximization is claimed to be a more appropriate hypothesis. The decision in order risk usually involves clear and precise goals and good information, but future outcomes of the alternatives are just not known to a degree of certainty.