Introduction
Company board management is the function which plays an crucial role for any enterprise. It is the situation of discussion where the chief members of organisation discuss success of business operations. The report will outline involvement of stakeholders in board meeting of firm and construction of financial statement. Also, it will identify advantages and disadvantages of absorption and marginal costing and use of costing method in different companies.
Main Body
Part A
Relevant stakeholders as per conceptual framework
Shareholder engagement in board meeting is the most crucial part of meeting as it helps the directors in determining interest of every individual with companies operations Like in case of Tesco board meeting engagement of 7 members is must in meeting which comprise, shareholders because these are the investors and the value of companies services can directly impact their value of shares (Horngren, Bhimani and Horngren, 2012). Further, involvement of auditor is mandatory because he or she is the person who helps the firm in determining cost functions of enterprise. The manager is the person who has control over all the financial information regarding business and its profits and losses. Apart from this, there will be managerial head will share information regarding manpower requirement. In addition, risk management team gets involve in meeting to share details about areas of business which involves risk and can become threat. The board meeting also comprise of member from, bank who analyse the firm ability to payoff liabilities and loans on time, creditors, and government who seeks information about functioning of business environment as per interest of environment and public
The construction of financial statement to meet needs of company board management
The construction of financial statement to meet the needs of board management require documentation which comprise, statement of financial position (balance sheet), which determines the balance of assets and liabilities of organisation. In addition it includes Statement of activities which is income statement that holds details presentation of organisation incomes and expenses. On the other hand, it includes Cash flow forecast, which helps the management in determining cash flow management. Further, the financial statement helps in framing Actual results compared to budget. It is the entry that helps the business in comparing and contrasting difference in expenses as per planned budget. However, the statement also involves Operational figures such as, cost per unit of services that have in calculating detailed information regarding products and business operations (Nilsson and Stockenstrand, 2016). Thus, this financial information assists board members in making decisions and setting appropriate direction for business activities. In this the motive of the members is to reduce cost investment and to improve cost effectiveness of organisational activities. Engagement of board members in planning requires trend analysis, information about business and business environment as it is the factor which directly influences financial projections and budget plan. Apart from this, it is important for the management to included statement of change in equity because it comprise record of all equity shares, retained earnings, performance shares and dividends which were paid and payble (Wu and Zhang, 2014).
Part B
Advantages and Disadvantages of marginal and absorption costing
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Marginal Costing |
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Advantages |
Disadvantages |
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The costing method is helpful in differentiating between fixed and variable cost. It is the accounting method which helps in reporting profits and recording cost functions. This method helps in treating variable cost as product cost as it keeps on fluctuating. It demonstrates relationship between volume, price and cost. In this costing method focused cost is recorded as period cost and therefore recorded in account of profits and losses (Fan and Nixon, 2015). |
The major limitation of this method is that it makes use of past data for future event which can be uncertain in many business situations. It eliminates consideration of fixed cost which is helpful in making production decision. The method oversimplifies fixed and variable cost. It do not recognise long run operation where sometimes fixed cost turns into variable. |
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Absorption Costing |
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· It clearly indicates necessity of involving fixed production cost in product cost. The pricing considered in this costing method involves all possible cost which helps in easy decision making. It helps in conforming matching and accrual concepts which are required to compare revenue and cost of financial year. In this system the company avoids separating variable and fixed cost. |
The method enables difficulty in comparing cost which leads lack of control on cost function. The method is not helpful in making managerial decisions. The calculation of this method involves fixed cost to which there is no reason in accounting terms. This costing method cannot be applied at the time of preparing flexible budget. |
Identification of costing method according to type of business.
Activity based costing method is used by garage specialist servicing vans, cars, and many other vehicles because this method helps the business in tracing cost of servicing according to product. This costing method recognize the affiliation between product, activities and costs, that helps in determining indirect cost regardless of any other cost calculating method.
Activity-Based Costing (ABC) systems is used by construction companies as it focuses on allocation of overhead. Apart for this it is the costing method which assists the management in determining cost of every function which makes evaluation easier (Javid, Hadian and Salehi, 2016). Further, it also helps the firm in determining cost by categorizing and segregating information regarding every business activities.
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