Managment Accounting and Finance

• Pricing strategy is a system that the business use to set and adjust prices to increase its market share and revenue.
• Cost information is essential for pricing decision making
• Companies need cost information to decide on the selling price of their products
• In some markets, prices are set by the market forces of demand and supply
• Companies in these markets are called price takers because they have less or no influence over the price
• In markets where companies set their own prices, they are called price setters
• Price setters have control over the prices of their products
• Products of price setters are unique, and their prices are not compatible with other products
• Competition based pricing involves setting price at same level as competitors.
• Cost-plus pricing involves adding a markup percentage on top of total costs.
• Cost-plus pricing is when the company adds an amount to its costs to determine selling price.
• Value based pricing involves setting price according to what customers are willing to pay, rather than cost or competition.
• We consider the following when setting a price: Price setters market facing a long short term decisions: in short term the fixed cost does not change but what is taken into account is the incremental costs which is the cost that is added when one unit of product is produced. In the sort run they can easily adjust to a change in prices
• Price takers have no control over the price of their goods/services because they cannot influence demand or supply. They must accept whatever price the market dictates. The only thing they can do is decide whether to sell or not.
• The market where the market forces of demand and supply set prices, they have to choose to sell product which are profitable are they do not have a choice than accept the price set by the market forces
• Characteristics of perfect competition:

  • All firms produce identical products
  • Firms have no power to affect the market price
  • Firms are small relative to the size of the whole market
  • Any individual firm has little effect on the market price
  • Many buyers and sellers with no barriers to entry
  • All information about prices and quantities is available to everyone
• Prices in perfect competition are determined by the interaction between suppliers and consumers in the marketplace
• Firms in perfect competition take the price as given and make output decisions accordingly
• Profit maximisation in perfect competition occurs at the point where marginal revenue equals marginal cost (MR=MC)
• A business is the entity that is engaged in commercial indusrty
• Types of entities we have profit company and non-profit company. what falls under profit company we have the natural persons and juristic person . under natural person we have Sole trader and partnership. Under Juristic persons we have public company , private company , state owned company and personal liability company . under non profit company we have the state owned entities which are and also non governmental organisations
• Profit entity is an entity that aims at maximising profit. Their goal is to maximise profit, to ensure that their stakeholders are satisfied or happy and to ensure there is a good reputation of the company which means that there is no negative impact on the society and the environment.
• For non-profit entity, they aim at providing service for the society without receiving wealth from the organisation. Their goal is to serve the community and not to make profit. They must achieve it effectively and efficiently.
• Different types of stakeholders we have internal stakeholders which are involved in the day-to-day operations. which are employees, owners and managers.
• External stakeholders are involved in the day-to-day operations. which are customers, shareholders, creditors, suppliers, society and government.
• Customers are external to the business
• Customers may not come to the business every day but may visit during sales
• Government's role is to ensure timely tax payment and prevent overdue taxes
• Creditors provide financing to the business in the form of loans
• Suppliers supply goods to the business, either on a cash or credit basis
• Shareholders invest in the business for their own benefit
• Shareholders expect a return on their investment
• Shareholders prefer businesses with a dividend policy of at least 50%
• Entrepreneurship is a process of taking a risk and reward to start a business.
• The risk is that what there is less demand, no suppliers for good and services what are going to sell, lack infrastructure, Bad debtors when you sell to customers on creditors and they end up not paying you, you have to write them off which means you write off that you will never the money this reduces your profit.
• The reward is wealth
• The difference between Financial Accounting and management Accounting is that financial accounting they focus on external things, they must follow GAAP, emphasis on historical data. Managment accounting is that their focus is internal, they do not have to follow GAAP and their emphasis is on future decision.
• Corporate governance is the set of rules that dictate how the board of directors manages the company and oversees the operations.
• Why corporate governance is important, they help build trust with the investor and the community, they also help stakeholders to know how the business is going because of transparency. which there are no secrect
• Ethics is the discipline of knowing what is right or wrong and what is good and bad