Bhimani, Horngren,
Datar and Rajan,
Management and Cost Accounting, 5
th
Edition, Instructor’s Manual
© Pearson Education Limited 2012 Despite the
economic analysis shown here, many managers would keep the old machine rather than replace it. Why Because,
in many organisations, the income statements of requirement (2) would be a principal means of evaluating performance. Note that the first-year operating income would be higher under the keep alternative. The conventional accrual accounting model might motivate managers towards maximising their first-year reported operating income at the expense of long-run cumulative betterment for the organisation as a whole. This criticism is often made of the accrual accounting model. That is, the action favoured by the corrector best economic
decision model may not betaken, either because the performance–evaluation model is inconsistent with the decision model or because the focus is only on the short-run part of the performance–evaluation model.
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