Accounting Fundamentals: Break-even Analysis, Management Accounting and Techniques
Verified
Added on 2023/06/18
|9
|1744
|141
AI Summary
This report covers the limitations of breakeven analysis, management accounting, its importance and techniques. It includes break-even point calculation, importance of management accounting, differences from financial accounting, and techniques to achieve management accounting objectives.
Contribute Materials
Your contribution can guide someone’s learning journey. Share your
documents today.
Fundamentals
Secure Best Marks with AI Grader
Need help grading? Try our AI Grader for instant feedback on your assignments.
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................................................................3 (c) Calculate the new profit figure for the improved product......................................................4 (d). Limitations of breakeven analysis.........................................................................................4 QUESTION 2..................................................................................................................................4 a. Discuss the importance of management accounting, and how it differs from what financial accounting provides.....................................................................................................................4 b. Discuss three techniques by which the management accountant can achieve the objectives of management accounting..........................................................................................................5 CONCLUSION................................................................................................................................5 REFERENCES................................................................................................................................6
INTRODUCTION Accounting is the procedure of recording, analysing and collecting the financial aspects of the business. These are prepared in every financial or accounting year. This report will cover the limitations of breakeven analysis, management accounting, its importance and techniques.For this report, Kerrigan Ltd. Company is considered which is operating their business operations in United Kingdom. QUESTION 1 (a)Calculate the break-even point (in units and revenues) of product A for Kerrigan Ltd.
(b)Calculate the profit made on sales of 75,000 units (c)Calculate the new profit figure for the improved product. (d)Limitations of breakeven analysis. It is the financial tool which mainly assist the company in determining stage at which an organization is working as to whether it is in no profit and no loss position. It is the financial calculation for the determination of number of offering which company must sell to cover the cost. Breakeven point contains specific and limitations which are given below – Its limitation is that it is concerned with the fact that the competitors are not factored in the equation. The new entrants do not affect demand of products or brings change in price (Chalera, 2020).
Paraphrase This Document
Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
This analysis is totally depend upon the assumptions that all the cost & expenses are separated into the fixed & variable cost components. In context of practical implications , it is not possible to obtain a clear cut divisions related to the pigs and also variable cost. It is analysed that fixed costs can be remain constant and stable at all the stages of the activities. It is determined that fixed cost can vary beyond the specific level of the activities. It is assumed that VC (variable cost), can vary proportionately with specific volume of the results. In term of practical experience, it moves undoubtedly but not specifically in direct proportions. As per the assumption, selling price may remain unchanged & provide Street revenue line which may not be true. Selling price of goods based upon the specific factors such as market demand & supply & also competition. So it is remaining constant. On the basis of assumptions, only one goats is produce & product mix can remain unstable or unchanged is critical to find in the practices. QUESTION 2 a. Discuss the importance of management accounting, and how it differs from what financial accounting provides. The importance of management accounting is that it helps in increasing the profits of the company as the company is made cost conscious which assist in avoiding the extra expenses of organization.Appropriate importance of Management Accounting in context of Kerrigan Ltd. is as follows - Planning - Management accounting is useful prepare a plan to gather the financial information and also not financial information about the company. Financial manager of the company need to forecast the market situation & contain in depth analysis about the whole scenario of the market which can useful to prepareappropriate plan to maintain the financial budget of the company. Management Accounting is useful to plan and organize all the business activities in an appropriate manner(HYK, V., 2020).
Decision making -Management accounting is beneficial to to maintain specific course of actions about the financial information and turnover so that financial manager can effectively take appropriate decisions. Management Accounting generate specific charts and measure of all the facts and figures show that manager can effectively forecast of all the financial aspects to take effective decisions(Kolin and et. al., 2021). Recognize the early signs of issues - Management accounting is also play a significant role to identify the early science of the specific issues related to the business activities of the company. Kerrigan Ltd. financial manager easily identify that if any product is not effectivelyperformsothatManagementAccountingcanusefultoidentifyissues (Walkshäusl, 2019). Strategic Management - It is determined that management accounting is also useful to maintain the strategic management process of the organization. Kerrigan Ltd company is maintain all the information so that manager can considered a strategic management process in order to prepare a sales strategy which can improve the financial position of the company(Bento, Mertins and White, 2018). Financial and management accounting are two distinct types of accounting of which the former is engaged in preparing the report which relates to financial health of company while the latter is concerned with preparing report many aspects such as budget, cost, etc. (Ahmed, 2018). It is analysed that financial accounting is considering external approach and include the activities related with the stockholders, creditors and also regulators. Management accounting is concerned about the internal aspects of the company which include managers, officer, superiors and subordinates.Financialaccountingonly utilizemonetaryinformationin thebusinessand Management Accounting is utilized both monetary and non monetary information(Lee and et. al., 2018).
b. Discuss three techniques by which the management accountant can achieve the objectives of management accounting. Management accountant is playing acrucial part to achieve the objective of Management Accounting. Management accountant is responsible to manage of all the accounting activities in the organization(Ostanaqulov, 2018).Where are various types of rules which performing by the managementaccountantsuchasStewardshipaccounting,developmentofaccounting information system, maintain the long term and short term planning process, manage the optimum capital structure of the company, actively participate in the management process, monitoring and decision making. Management accountant is liable to perform all these roll so that accountant can effectively obtain the management accounting objective(Dahal, 2018). There are three techniques which Management accountant can use in order to to accomplish Management Accounting objective which are given below- Cash flow statement:This technique helps in providing detailed information about inflowandoutflowofcashofthecompanywhichhelpsincontrollingcashof organization(Pavlatos and Kostakis, 2018). Fund flow statement:It is mainly used to analyse the changes in the financial position of company as it relates to from where the funds are coming and where it is used (Alabdullah, 2019). Graphical and statistical presentation:The management accountant uses the graphs and statistics to determine their information so that managers are able to make effective decisions as it makes the information more understandable (Ahmad, 2017).
Secure Best Marks with AI Grader
Need help grading? Try our AI Grader for instant feedback on your assignments.
CONCLUSION It is concluded from this that the management accounting is mainly prepared in order to assist the management in decision making. There are many techniques to it which assist management accountant in achieving its objectives such as cash flow statement, graphical presentation, fund flow statement, etc.
REFERENCES Books and Journals Ahmad, K., 2017. The implementation of management accounting practice and its relationship with performance in Small and Medium Enterprises sector.International Review of Management and Marketing.7(1). Ahmed,M.N.,2018.Outsourcingrelationshipmanagement:accountinginthedecision mix.Journal of Business Strategy. Alabdullah,T.T.Y.,2019.Managementaccountingandservicecompanies'performance: Researchinemergingeconomies.AustralasianAccounting,BusinessandFinance Journal,13(4), pp.100-118. Bento, R.F., Mertins, L. and White, L.F., 2018. Risk management and internal control: A study of management accounting practice. InAdvances in Management Accounting. Emerald Publishing Limited. Chalera, F., 2020. Investigating the Impact of Management Accounting in Decision Making and Control: A Survey of the Manufacturing Sector in Malawi.Available at SSRN 3514883. Dahal, R.K., 2018. Management Accounting and Control System.NCC Journal,3(1), pp.153- 166. HYK, V., 2020. Conceptual Fundamentals of Institutional Theory of Accounting.Облiк i фiнанси, (4), pp.17-21. Kolin, D.A., Moverman, M.A., Menendez, M.E., Pagani, N.R., Puzzitiello, R.N. and Kavolus, J.J., 2021. A break-even analysis of tranexamic acid for prevention of periprosthetic joint infection following total hip and knee arthroplasty.Journal of Orthopaedics,26, pp.54-57. Lee, M., Hong, T., Koo, C. and Kim, C.J., 2018. A break-even analysis and impact analysis of residential solar photovoltaic systems considering state solar incentives.Technological and Economic Development of Economy,24(2), pp.358-382. Ostanaqulov,A.,2018.THEFEATURESOFFORMATINGANDACCOUNTING EXTERNALFUNDSFROMBUDGETOFBUDGET ORGANISATIONS.International Finance and Accounting,2018(5), p.3. Pavlatos, O. and Kostakis, X., 2018. The impact of top management team characteristics and historicalfinancialperformanceonstrategicmanagementaccounting.Journalof Accounting & Organizational Change. Walkshäusl, C., 2019. The fundamentalsof momentum investing: European evidenceon understanding momentum through fundamentals.Accounting & Finance,59, pp.831- 857.