Finance and management essay

The differences between financial and managerial accounting Abstract This paper is going to consist of the differences between financial and managerial accounting. Furthermore, the types of information between accounting and financial will be brought up and discussed as well.

Finance and management essay

Opportunity cost Differential cost between the alternatives of producing or not producing surfboard B Every decision involves a choice from among at least two alternatives.

The costs and benefits of the alternatives should be compared when making the decision. A relevant cost or benefit is a cost or benefit that differs between alternatives.

Differential costs are relevant costs. Any cost or benefit that does not differ between alternatives is irrelevant and can be ignored in a decision.

This is a tremendously powerful concept that allows us to ignore mounds of data when making decisions since Finance and management essay things are not affected by any given decision. All sunk costs i. All future costs that do not differ between alternatives are irrelevant. Any cost that is avoidable is potentially relevant.

An avoidable cost is a cost that can be eliminated in whole or in part as a result of choosing one alternative over another. When making a decision, eliminate all irrelevant costs. Make the decision based on the remaining, relevant costs. Different costs for different purposes.

Costs that are relevant in one decision situation are not necessarily relevant in another. In each situation the manager must examine the data and isolate the relevant costs. People are especially reluctant to discard sunk costs in decision-making when the sunk costs are a consequence of a past decision that in retrospect was unwise.

People have a tendency to become committed to courses of action that have not worked out. Taking a loss on an asset is an admission of failure. Adding or Dropping a Segment. Decisions relating to dropping old products or segments and adding new products or segments are among the most difficult that a manager makes.

Two basic approaches can be used to analyze data in this type of decision. Compare contribution margins and fixed costs.

Principles of Financial Management – Essay Sample

A segment should be added only if the increase in total contribution margin is greater than the increase in fixed cost. A segment should be dropped only if the decrease in total contribution margin is less than the decrease in fixed cost. A second approach is to calculate the total net income under each alternative.

The alternative with the highest net income is preferred. Beware of allocated common costs. Allocated common costs can make a segment look unprofitable even though dropping the segment might result in a decrease in overall company net operating income. Allocated costs that would not be affected by a decision are irrelevant and should be ignored in a decision relating to adding or dropping a segment.

The Make or Buy Decision. A make or buy decision is concerned with whether an item should be made internally or purchased from an external supplier. Advantages of making an item internally. Producing a part internally reduces dependence on suppliers and may ensure a smoother flow of parts and material for production.

Quality control may be easier when parts are produced internally. Profits can be realized on the parts and materials. Advantages of buying an item from an external supplier.

By pooling the requirements of a number of users, a supplier can realize economies of scale and may be able to move more quickly up the learning curve.Financial management is related to the acquisition, financing and management of assets with a future goal and planning.

Efficient financial management requires the laying down an objective or goal, because judgement whether a financial decision has been rightly taken or not must be in light of some standard.

Financial And Management Accounting - Sample Essays

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Finance and management essay

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