INTRODUCTION - ENGINEERING ECONOMICS AND FINANCIAL ACCOUNTING

Dr.K.Baranidhara
n
Present by…

Engineering
Economics &
Financial
Accountingment
Ee&fa
213 July 2013

Prepared by :
Dr. K. BARANIDHARAN
ENGINEERING ECONOMICS
AND
FINANCIAL ACCOUNTING
Sri Sairam Institute of Technology3

ENGINEERING
ECONOMICS
Engineers have an added responsibility and that is
to include economics in their calculation &
decisions. When the economics principles are
applied to engg. Problems, then a new branch of
knowledge called engineering economics
Sri Sairam Institute of Technology 4

ECONOMICS
Economics is a social science that studies the
behavior of human beings. Organization or any
entity mode up of human beings in situations
involving choice.

ECONOMIC ACTIVITIES
The activities are carried out
with the purpose of earning on
income or making money, they
are called economic activities.
Activities involvue MONEY
Earning income in either CASH
or KIND

NON-ECONOMIC ACTIVITIES
The activities that
are performed out of
LOVE, affection and
social concern but
not for money

ECONOMIC CIRCLE

ECONOMICS - DEFINITION
 FATHER OF ECONOMICST:- Adam Smith defined
economics as “Economics is the sciences of wealth”
 wealth?
 Wealth has been defined as “stock of goods existing
at a given time that have money value”.
 classification of wealth.
 Personal wealth(individual wealth)
 Social wealth( collective wealth)
 National wealth (a+b)
 Cosmopolitan wealth (e.g. ocean)

Alfred Marshall Economics is
defined as “a study of mankind
in the ordinary business of life”
 Lionel Robbins’:Economics
is the science which studies
human behaviour as a
relationship between ends and
scarce means which have
alternative usesSri Sairam Institute of
Technology
10

MICRO ECONOMICS
Micro means small. Micro
economics deals with
problems such as the output
of a single firm, price of a
single commodity and
spending on goods by a
single household.

MACRO ECONOMICS
Macroeconomics studies the
economic system as a whole. In
it, we get the complete picture
of the working of the economy. It
is a study of economic
aggregate such as total
employment, savings, and
investmentSri Sairam Institute of Technology12

DIVISION OF ECONOMICS
Consumption
Production
Exchange
Distribution
Public Finance

types of the economic systems
CAPITALIST ECONOMY:
An economic system based on private
ownership of capital
Capitalism encourages private
investment and business, compared
to a government-controlled economy.
Investors in these private companies
(i.e. shareholders) also own the firms
and are known as capitalists.

MIXED ECONOMY
Both private individuals
and government
participate in seeking
answers for the above
economic.

FREE OR LAISSEZ-FARE
ECONOMY
The economy
where government
keeps its hands off
such major
economicSri Sairam Institute of Technology16

MANAGERIAL ECONOMICS
MEANING
Managerial economics is economics
applied in decision making. It is the
branch of economics which serves
as a link between abstract theory
and managerial practice.
It is based on the economic analysis
for identifying problems,organizing
information and evaluating
alternatives
S R I S A I R A M I N S T I T U T E O F T E C H N O L O G Y 17

DEFINITIONS OF M E
Sri Sairam Institute of Technology
18
 ―Managerial economics is the of
economic modes of thought to
analyse business situationǁ
•-MC.NAIR AND MERIAM
 ―Managerial economics is the
integration of economic theory with
business practice for the purpose of
facilitating decision making and
forward planning by the management.

NATURE OF M E
• 1. It is microeconomic in character as it
concentrate only on the study of the firm not
on the working of the economy
• 2. It takes help from the macroeconomics
to understand the environment in which
the firm operates‘
• 3. It is normative rather than positive i.e., it gives
answer for the question what ought to be than what
is,was.
• 4. It is both conceptual and metrical.

SRI SAIRAM INSTITUTE OF TECHNOLOGY 20
• 5. It focuses mainly on the theory of
the firm than on distribution„
• 6. Knowledge of managerial economics
helps in making wise choices. i.e.,
choices among scarcity of resources.
• 7. It is goal oriented i.e., aims at
achievement of objectives

SIFNIFICANCE OF M E
 1. It helps in decision making
 2. Decisionmaking means a balance between
simplification of analysis to be manageable
and complication of factors in hand
 3. It helps the manager to become an more
competent builder
 4. It helps in providing most of the concepts that
are needed for the analysis of business
problems,
 The concepts such as elasticity of demand
,fixed, variable cost, SR and LR costs,
opportunity costs,NPV
 etc.,
21

5. It helps in making decisions in
the following.
What should be the product mix?
Which is the production technique?
What is the i/p mix at least cost?
What should be the level of output
and price?
How to take investment decisions?
How much should the firm advertise

OBJECTIVES OF M E
To help in understanding the
market condition & general
economic environment with
in which the firm operate.
To provide a philosophy for
understanding & analyzing
resource allocation problem

SCOPE OF M E
 Objectives of a business firm
 Demand analysis and forecasting
 Cost analysis
 Production management
 Supply analysis
 Pricing decisions, policies and
practices
 Profit management
 Capital budgeting and investment
decisions
 Decision theory under uncertaintySri Sairam Institute of Technology24

MAIN AREA OF M E, 1.DEMAND
DECISION
THe Forecasting Of Demand For
A Given Product And Service Is
The First Task Od The ME.
The behavioural implication such as
the customer response to given
changes of price and supply.
The changes of income levels of
customer

2.INPUT-OUTPUT DECISION
The cost of inputs in
relation to output are
studied to optimise
profits.
Production and cost
function are estimated to
certain parameters,Sri Sairam Institute of Technology26

3.PRICE-OUTPUT DECISION
The Production Is Ready
And The Task Is
Determine The Price In
Different Market
Situation Such As
Perfect And Imperfect
Markets Ranging From
Monopoly.

4.PROFIT - RELATED
DECISION
The technique such as
Break Even Analysis,
cost reduction and
control and ratio
analysis to ascertain
the level of profit.

5.INVESTMENT DECISION
Investment decision are also
called capital budgeting
decisions.
Involve the large fund
commitment, which
determine the fate of the
firm.

6.ECONOMIC FORECASTING AND
FORWARD PLANNING
 The economic forecasting leads to the
forward planning.
 The firm operate environment which is
dominated by the INTERNAL AND
EXTERNAL factors.
 EXTERNAL: govt policy, competitation,
employment, labour, human resources,
finance, marketing..
 INTERNAL: policies, procedures relating to
the finance, people, market and
products….Sri Sairam Institute of Technology30

M E related with OTHER
DISCIPLINES
Managerial Economics and
Traditional Economics:
Economics and Managerial
economics both are facing
identical problems,i.e., problem
of scarcity and resource
allocation.
Since labour and capital are
always limited it must find way
for effective utilizing of theseSri Sairam Institute of Technology31

32
 HELP IN UNDERSTANDING THE
MARKET CONDITIONS AND THE
GENERAL ECONOMIC
ENVIRONMENTWITHIN WHICH
THE FIRM OPERATES.
 TO PROVIDE THE PHILOSOPHY
FOR UNDERSTANDING AND
ANALYSING THE RESOURCE
ALLOCATION PROBLEMS

1. M E OPERATIONS RESEARCH
 Both operations research and
managerial economics are concerned
with taking effective decisions,
managerial economics is a undamental
academic subject which seeks to
understand and to analyse the
problems of business decision
making while OR is an activity carried
out by functional specialist within the
firm to help the manager to do his job
of solving decision problems

ITS MAIN CONTRIBUTION TO
OR models like queuing,linear
programming etc.., are widely
used in managerial economics
Model building, economic
models are more general and
confined to broad economic
decision making

2.ML ECONOMICS AND
MATHEMATICS
Mathematics is closely related
to managerial because
managerial economics ,being
conceptual but also metrical.
Its metrical property is used to
estimate and predict the
relevant economic factors for
decision making and forwardSri Sairam Institute of Technology35

Geometry, algebra and calculus
Logarithms and exponential,
vectors and determinants,
input-output tables etc.,
Even OR can be included as a
part of mathematical exercise

3. MANAGERIAL ECONOMICS
AND STATISTICS
Statistics is widely used in
managerial economics. It is mainly
needed for a correct judgement
and decision making
To handle the unforeseen
circumstances the theory probability
is mainly used.Sri Sairam Institute of Technology37

THE THEORY OF DECISION
MAKING
The theory of decision making is
relatively a new subject that has
significance for managerial
economics.
Much of economic theory is based
on the single goal MAXIMISATION
OF PROFIT, but theory of decision
making recognizes the multiplicity of
goals and the pervasiveness ofSri Sairam Institute of Technology38

5.ROLE OF MANAGERIAL
ECONOMIST IN BUSINESS
The task of organizing and
processing information and
then making an intelligent
decision based upon two
general forms
Task of making Specific
decisions

Task of making Specific decisions
 Production scheduling
 Demand forecasting
 Market research
 Economic analysis of the industry
 Investment appraisal
 Security management appraisal
 Advice on trade
 Advice on foreign exchange management
 Pricing and related decisions

Task of making General
decisions
Analysing the general economic
condition of the economy
Analyzing the demand for the
product
Analysing the general market
condition of the economy

6.ACCOUNTANCY
Accountant provides accounting
information relating to cost,
revenues, receivables,
payables, profit/losses. In the
data performance of the firm
result.
Decision making and forward
planning.Sri Sairam Institute of Technology42

7.PSYCHOLOGY
CONSUMER
PSYCHOLOGY is the bsis
on which a ME acts.
The customer react the
change the price or supply
and it is effect of
demand/profits is the main
focus study of ME.

8.Organisational behaviour
The study develop
behavioural model of
firm integrating the
manager‟s behaviour
with that of the owner.

INTRODUCTION - ENGINEERING ECONOMICS AND FINANCIAL ACCOUNTING

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INTRODUCTION - ENGINEERING ECONOMICS AND FINANCIAL ACCOUNTING