Below topic is given for assignment. Every student should prepare 750 to 1000 words write up. One of class mate (Robert Storer) have submitted the attached solutions. Can you read the attached and solution, ask few provoking questions with below guide lines. ? Ask a probing question. ? Share an insight from having read the attached solution. ? Offer and support an opinion or suggestion. ? Validate an idea with your own experience. ? Expand on the ideas in attached solutions Topic: A friend has asked you for some advice: "My small business now makes a profit; I am only too aware of this, as I now face a big tax bill each year, when my tax accountant has prepared my annual accounts. However, I don't feel much better off personally, so this is not quite what I had expected when I took the risk of resigning my job and setting up my own firm. The accountant is now trying to persuade me to pay her even higher fees, by letting her prepare monthly 'management accounts' for me. She says that I would also benefit from something called CVP analysis on my various product lines. I know that you are now doing an MBA. What does she mean here, and is this likely to be worth my paying her for?" Outline the differences between financial reporting and managerial accounting information and explain the benefits and potential problems associated with cost?volume?profit (CVP) analysis. How might the technique that you have discussed assist your friend in the effective management of his business' resources? What advice would you give him? ******************************************************** Solution: To understand the differences between financial reporting and management accounting we will establish what both are. Financial reporting is an umbrella covering the money within the company; it may be in a form of a financial statement, balance sheet, profit and loss, or any other extravagant options that are available. The primary function of financial reporting is to inform stakeholders on how, where, and what the monies of the company are distrusted. Allowing stakeholders to view assets verses liabilities, if the company is making a profit, where the original capital is and if any more has been invested, and the financial outlook for the future. All of these results and answers are used for two main purposes, taxes and stakeholders. However, the findings are used for many other functions, such as, comparison of competition and historical tracking of trends. Managerial accounting is designed to provide accounting information within the organization enabling the decision makers to make informed choices with both the management and control systems (Ittner and Larcker 2001). This umbrella includes break-even point analysis, profit-volume chart, marginal analysis, and cost volume profit. With these reports they stay in house, meaning they are private and not for the public eye. The differences between financial reporting and managerial accounting are: Financial reporting is made with the intentions stakeholders? will see results. Managerial accounting is private, held in house by decision makers. Financial reporting is historical data recorded tracking the past spending and receiving habits of the company. This information is processed for taxes and deciphering where the assets are. With this information you have visible evidence of the solvency of a company, allowing the prediction of future growth. Managerial accounting is future driven; framework is designed to understand how to position the control systems in a position to maximize future opportunity. Financial reporting follows set accounting boundaries established by the governing entities. Management accounting is a revolving report established by the needs and want of the decision makers. Each system is accompanied by an abundance of benefit. Financial reporting, besides being a must, will benefit your company by giving you a historical reference guide allowing you to see the swings in the market by year, season, or month. Also, allowing you to be translucent for your stakeholders creating better rapport and establishing trust. Above all else, you will be able to know where your company sits in relation to assets verse liability, debt ratio, operating ratio, working capital, and solvency among others. Management accounting is useful when establishing and reinventing control systems within the company. Additionally, it gives an opportunity for the company to run more than one report allowing the company assesses the effectiveness (Atrill and McLaney, 2011). The understanding of these assorted reports allows managers to make informed decisions for the future considering the financial results. The relationship of the financial understanding and controllable actions is a must to run optimally while maximizing efforts. In particular your accountant mentioned the use of CVP analysis. CVP is cost volume profit analysis used to differentiate actions and results of producing, pricing, and selling. A holistic view of the production operations within the company with a premium placed on price for profit concept. This tool is also useful for identifying opportunities for streamlining current tactics, like outsourcing or adding to existing products and even replacing variable costs with fixed costs (Chrysafis and Papadopoulos, 2009). The framework allows for both fixed and variable costs and both the cost and revenue are shown as linear. CVP can help you determine the effects of changes in volume or costs allowing an educated assessment of your current state and make appropriate choices for the future. Although, the framework will allow a mixture of products it does not distinguish the relative amount of a particular product to the total sale. The result of blending product pricing and cost together will not give a completely accurate account for your total portfolio, but an overview of the company in a generalized manner. However, it can still signal out faulty operation actions. The aim of this framework is short-term remedy not for long-term scrutiny. Although, there are identifiable flaws within this option it is a good start for a young company. Because of the generality of CVP it allows for elementary understanding and deviation of the report can be spawn giving more specific results. The incorporation of systematic assessments will lead to a more efficient operation allowing identifiable opportunities to be achieved with full understanding of the financial consequence. My advice would be to incorporate CVP as an added expense to better position the company for the future. In addition, break-even point (BEP) will need to be identified for continued success. Since they were unaware they made a profit last year, I would venture to say the benefits of CVP at this stage would be much more useful than just discovering costs effects on profit, but allowing a deeper understanding of all his business processes including the BEP. Bibliography Atrill, P. & McLaney, E. (2011) Finance and accounting for managers. Laureate Online Education custom ed. Harlow, UK: Pearson Custom Publishing. Chrysafis, K, & Papadopoulos, B 2009, 'Cost-volume-profit analysis under uncertainty: a model with fuzzy estimators based on confidence intervals', INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH, 47, 21, pp. 5977-5999 [Online]. Available from: http://ehis.ebscohost.com.ezproxy.liv.ac.uk/eds/pdfviewer/pdfviewer?vid=7&hid=120&sid=f8974125-6e2c-466f-9784-d63653b13d67%40sessionmgr115. (Accessed on: 17 September 2011). Ittner, C & Larcker, D (2001) ?Assessing empirical research in managerial accounting: a value-based management perspective? Journal of Accounting and Economics [Online]. Available from: http://miha.ef.uni-lj.si/_dokumenti3plus2/196128/Ittner,Larcker-2001-AssessingempiricalresearchinMA.pdf. (Accessed on: 17 September 2011).
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