Accounting Fundamentals: Break-even Analysis, Management Accounting Techniques

Fundamentals

Contents
INTRODUCTION...........................................................................................................................3
QUESTION 1..................................................................................................................................3
(a) Calculate the break-even point (in units and revenues) of product A for Kerrigan Ltd........3
(b) Calculate the profit made on sales of 75,000 units................................................................4
(c) Calculate the new profit figure for the improved product......................................................4
(d) Limitations of the breakeven analysis....................................................................................4
QUESTION 2..................................................................................................................................5
a. Discuss the importance of management accounting, and how it differs from what financial
accounting provides.....................................................................................................................5
b. Discuss three techniques by which the management accountant can achieve the objectives
of management accounting..........................................................................................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Accounting can be defined as the process or cycle which includes summarising, recording,
analysing and also reporting the fata relating to the financial transaction. It involves the system
of making record and summarising the financial and business transactions and also involves
analysing, reporting and verifying the results also. It is essential to the business to maintain the
accounts of the firm so that it can get to know about the financial health of the organization. This
report discusses about the management accounting, importance of it and how it is distinguishable
from financial accounting. Further it will include limitation of breakeven analysis and techniques
of management accounting.
QUESTION 1
(a) Calculate the break-even point (in units and revenues) of product A for Kerrigan Ltd.
Given information
Selling price 11
Variable cost per unit 6
Fixed cost 350,000
Selling units 75000 units
Break even in units = Fixed cost / sales price – variable cost
= 350,000 / 11 – 6
= 350,000 / 5
= 70,000 Units
Break even in revenues = Fixed cost / Contribution margin ratio
= 350,000 / 375000/825000
= 350000 / 45%
= £777777.77
Contribution margin ratio = contribution / sales
= 5*75000 / 11*75000
= 375000 / 825000
= 45%

ACCOUNTING
FUNDAMENTALS

TABLE OF CONTENTS
QUESTION 1...................................................................................................................................3
a) Break even point......................................................................................................................3
b) Profit made on sale..................................................................................................................3
c) New profit figure.....................................................................................................................3
d) discussing the limitations of break even analysis ...................................................................4
QUESTION 2...................................................................................................................................4
a) .................................................................................................................................................4
b) Discussing the techniques with management accountant can achieve objectives of
management accounting ..............................................................................................................5
REFERENCES................................................................................................................................1

QUESTION 1
a) Break even point
BEP = Fixed cost / Contribution per unit
= 350000 / 5 (11-6)
= 70000 Units
Break even point in revenue: 70000 * 11
= 770000
from the above calculation it can be identified that the break even revenue for the Kerrigan
Ltd. In addition to this, the units of 70000 need to be developed by the organization in order to
obtain the situation of no profit or loss. Break even point will provide assistance in gaining
proper knowledge.
b) Profit made on sale
Sales 825000 (75000 * 11)
Less:
Variable cost 450000(75000 * 6)
Contribution 375000
Less:
Fixed cost 350000
Profit 25000
On the basis of above table it can be signified that profitability from making ale of
75000 units is 25000.
c) New profit figure
Sales 1040000 (80000 * 13)
Less:
Variable cost 560000 (80000 * 7)
Contribution 480000
Less: