Accounting & Finance

The purpose of the report is to explain the scope as well as objectives of financial accounting for catering the need of stakeholders. It also has focus on highlighting the advantages as well as disadvantages of absorption and marginal costing.

TASK 1

A) Identifying as well as describing the relevant stakeholders as per the conceptual framework

Conceptual framework is defined as a framework which is considered to be as an attempt to explain the nature as well as scope of accounting. A cording to the conceptual framework various stakeholders such as government , banking institutions , investors, employee, lenders, creditors share the right to get information about the financial performance of conversely, shareholders, and more specifically professional shareholders are generally short-term oriented and expect immediate, maximum profits (Weil, Schipper and Francis, 2013) Investors alone were considered to be the primary users of financial information , as investors are providers of risk capital to the enterprise. Financial statement assists manager in making the business decision. Financial statement assists investors in making the judgement related to the future investment. It also helps investors in analysing or evaluating the return they will get from making the investment. It also helps suppliers in ensuring that they will get payment on the time. Providing information to investors, promoters, debt provider and creditors which is used to enable them to male rational and prudent decisions regarding investment, credit etc. It also enables management team in making plans related to Enhancing social welfare by looking into the interest of employees and Government (Williams, 2014)

B) Analysing the way construction of financial statement meet the needs of stakeholders

As per the balance sheet theories, the information contained in the balance sheet should be provided to the investor. As this will assist them in analysing the business performance. It will also help investor in making the decision related to making further investments in the future. Finacial statement helps the stakeholders in identifying the total profit or revenue earned by an organisation during particular financial year (Ismail and King, 2014)

TASK 2

A) Advantages as well as disadvantages of absorption and marginal costing

Absorption costing is defined as all of the manufacturing costs are absorbed by the units produced. In simple words, the cost of a finished unit in inventory will include direct materials, direct lobar, both variable and fixed manufacturing overhead.

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Management of financial resources
Accounting and Financial Reporting

Advantages :

• It helps in development of understanding about the significance of fixed cost involved in production or operational activities.
• Absorption costing method is considered to be effective when Revenue as stock is not undervalued.
• It is considered to be as an appropriate tool which is proved to be useful when preparing financial account.
• This method helps in identifying the method for maintaining net profit in case of regular production. But there may be fluctuation in sales.
  
  

Disadvantages

• Absorption costing technique have focus on only total cost. It doest not have emphasizes on other variable cost. Absorption costing provides incomplete information which is not useful for management and might have negative influence on decision taken by manager.
• Manager is more concerned about the total cost, the cost volume profit relationship is ignored.
  
  

Marginal costing

Marginal costing is defined as an accounting system in which variable or cost which are not fixed are charged to cost units and fixed costs of the period are written off in full against the total contribution.

Advantages

• Marginal costing helps management team in identifying the impact of change in profit on output.
• This method or techniques is simple to understand.
• This technique of accounting assist management in developing the understanding about the relationship between volume, price and cost.
  
  

Disadvantages

• The major advantage of this accounting techniques is that it utilised the historical information or data.
• Fixed cost is not involved in this accounting technique (Otley and Emmanuel, 2013)
  
  

B) Identifying the costing technique each of the type of business listed below will be utilizing

1. Kwik Fit: a garage specialising in servicing cars, vans and other vehicles – Job costing technique can be utilised by the firm. In this method of costing Costs are accumulated via transactions that occur for buying of raw material, Specific labour charges
   Level of assignment of manufacturing. It will assist manager in making the pricing decision.
2. A construction firm specialising in building offices and or houses. :Activity based costing is the method which can be adopted by an organisation. This costing method Costing can assist manager in gaining clarity into the projects which are profitable.
3. A car manufacturing industry: producing cars and SUV _ standard costing techniques is suggested to this organisation. As this is the costing method employed by manufacturing operations. The major benefit of using the standard costing method is that business entity can produce product up to a specific of standards. The another advantages is that when there is fluctuation in actual rates the changes can be monitored as well as compared by analysing deviation recorded at the production level (Messner, 2016)

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