Pedro: “Nuts” Essay Example

absorption rates. Over-absorption occurs if actual expenses are more than budgeted, and under-absorption occurs if budgeted expenses are less than actual volume.

Apportioning is the process of sharing costs among various departments. Fairly apportioning overhead costs is important because differences in product sizes require different proportions of expenses. Pedro currently holds 50 units and the counter will be apportioned accordingly, but if stock levels change, the allocation must be redone to maintain efficiency. Drury (2008) defines cost allocation as assigning costs when there is no direct measure for resource consumption. By allocating costs, Knock can identify expenses for each cost object and recommend a price to Pedro, which can be used for performance measurement and decision making. Hugh used absorption costing to build a step-by-step selling price for Pedro's peanuts, incorporating total costs. Through the four techniques employed, Hugh was able to justify costs and educate Pedro on his original approach.The utilization of absorption costing enables the computation of the selling price with the intended profit margin as declared by Hugh - amounting to $2.

According to Hugh, the total cost of peanuts was $2.64. However, Pedro claimed that a profit of 16 cents per bag was necessary, which would increase the selling price to $2.80. Financial accounting refers to the process of identifying, measuring, and communicating economic information to help users make informed decisions. It involves recording transactions like sales and preparing financial statements such as profit and loss statements and cash flow forecasts. External parties like shareholders commonly use this type of accounting.

Financial accounting, as described by Drury (2008), primarily serves to provide external parties with necessary information about an organization. This includes accounting information

specifically intended for individuals who have a vested interest in the organization, such as investors. In addition, government agencies like Her Majesty Revenue ; Customs (HMRC) collect financial data to ensure proper taxation, including corporation tax. Collecting this financial data has two benefits: ensuring fair taxation and identifying how institutions impact the economy and improve economic growth through increased aggregate demand factors. Shareholders are particularly interested in a business's financial situation as they own a share in the company and need to understand it in order to protect their investment and receive dividends at the end of each financial year, according to Hugh Knocks.

The importance of shareholders in business extends beyond providing capital. Their input can help improve overall business performance. Financial accounting examines profit and loss to gauge a company's performance. A profit suggests costs have been covered and additional revenue can be invested back into the business or distributed as dividends to shareholders. In contrast, a loss indicates insufficient revenue to cover operating costs, resulting in an unsuccessful venture with no returns for shareholders. Gowthorpe (2008) defines management accounting as accounting for a business's internal use to assist with decision-making and controlling the business.According to the American Accounting Association, management plays a crucial role in a business by utilizing management functions such as forecasting, planning, organizing, communicating, coordinating and controlling to make informed decisions based on reliable and confidential accounting information. Unlike financial accounting, internal accounting focuses on providing economic information to managers within an organization. By utilizing Fayol's Function of Management, managers can efficiently establish informed judgments and decisions. In relation to Pedro's peanut venture, forecasting through the use of a sales

budget is essential for predicting future revenue. This information is necessary for both Pedro and Knock as it provides insight into the total revenue gained from sales, with Hugh's estimated calculations projecting weekly revenue of $132 based on a selling price of $2.

Pedro's nut business relies on the weekly sale of 50 bags, which when multiplied by 64, determines the necessary sales volume to cover operating costs and generate profits. Effective planning is critical to his business operations, enabling Pedro to arrange redeliveries of stock, pay for provided labour and services, and ensure profitability. Communication plays a crucial role in enabling Pedro to discuss and implement suggestions made by management accountants, leading to improved efficiencies. Coordination with Hugh Knock is paramount to Pedro's efforts to enhance his business activities. Maintaining control is essential to Pedro's business success, ensuring conformity between targeted outcomes and actual performance. Failure to meet sales targets will impact his business adversely in the long run.

Several years after Fayol's initial studies on the 'control' aspect of management, philosopher Tocher further researched the topic to provide more comprehensive insights. The goal was to assist managers in avoiding complacency with policies and procedures. According to J. Joyce, Tocher's four conditions for control are: stating objectives, measuring progress, predictive modeling, and taking control. For Pedro, this means setting objectives for his business venture, such as achieving short-term profits from peanut sales. He can measure progress by breaking even on sales weekly, make informed decisions by seeking Hugh Knock's assistance, and taking control to proactively address issues. Hugh Knock's statement that accounting solely exists to ensure all costs are covered and that shareholders know about profitability

is inaccurate. This is due to his limited view that accounting has only one role. In reality, there are many different types of accountants who assume various roles within organizations.

As internal decision makers in organizations, management accountants prioritize cost classification and coverage to maintain efficient business operations. However, they rely on financial accountants for crucial information to aid in decision-making. Additionally, both management and financial accountants work towards ensuring profitability. Yet, it is imperative for financial accountants to inform shareholders of an organization's financial position to guarantee returns on their investments through dividend payments made annually or quarterly.