Accounting Fundamentals: Break-Even Analysis and Management Accounting

This report covers accounting fundamentals including break-even analysis and management accounting. It explains the calculation of break-even point and profit, limitations of break-even analysis, and the need for management accounting. The report also discusses various techniques such as budgeting that can be used to achieve the objectives of the company.

FUNDAMENTALS

TABLE OF CONTENTS:
Introduction .....................................................................................................................................3
Question 1 .......................................................................................................................................3
Question 2 .......................................................................................................................................4
Need of management accounting.................................................................................................4
Conclusion ......................................................................................................................................6
REFERENCES................................................................................................................................7

Introduction
The following report focuses on accounting fundamentals. Fundamental accounting is an
umbrella term which cover all the bases whether it is writing of the financial statement or
preparation of the income statement and it also covers the closing of accounts for ever fiscal year
(Kurmangaliyeva and et.al 2021) In this report calculation of break-even point has been defined
and the calculation of profit is also elaborated in this report. Along with these limitations of
break even has also been defined in this report. Besides this, importance of management
accounting is being mentioned in this report.
Question 1
Contribution = Selling price per unit – variable cost per unit
Particular Amount
Selling price per unit 5.75
Less: Variable cost 3.50 (1.35+1.75+0.40)
Contribution 2.25
Break even
Fixed cost/ Contribution
= 180000/2.25
80000 units
b Profit
= 90,000-80,000*2.25
225000
c Improvisation of product
Particular Amount
New Selling price per unit 6 (5.75+0.25)
Less: New Variable cost 3.70 (1.35+0.05+1.75+0.15+0.40)

Contribution 2.3
New fixed cost 192500 (12500+80000)
New sales (volume) 94500 (90000*1.05)
New break even point
192500/2.30
83696
Profit
94500-83696*2.3
=24850
Limitations of break- even analysis
One of the biggest limitation of this company is to septate the fixed and variable cost.
Along with this there are various semi variable cost available which is not considered by the
break even analysis (Maheshwari and et.al 2021). Besides this non-linear relationship between
sales and price is also one of the major drawback of Break even. As variable overheads' mare
made on estimated basis. The major problem of under and over recovery is being mentioned in
this report.
Break-even also ignores time elements and with the passage of time all cost o get changes
so the comparison can become difficult from break even. Along with this, break even works on
certain assumptions and there for sometimes it do not provide accurate results. Break even
assumes that fixed cost always remain constant and also it assumes all level of output. Apart
from this, another important assumption is that variable cost can fluctuate in direct proportion so
that company may get the appropriate result.
Question 2
Need of management accounting.
Management accounting is the procedure of identifying, measuring and analysing all the
accounting information so that management of the company can take accurate decisions and it
also assists the management of the company to take sound decision in the favour of the company.
One of the important need behind using management accounting in the company is that it helps
the company to cut down the unnecessary cost.

The entire procedure of management accounting is an integral part of internal
organization because using management accounting business can attain all its desired goal and
objective. Apart from this with the help of management accounting company can know their
financial position ans they can use the finance and funds appropriately so that they can produce
desired result to customers.
Besides this management accounting is needed because it provides financial and non –
financial information to the management of the company so that they may utilize the fund
effectively (Malik and et.al 2020). All the information which is being given by the management
accounting is helpful for the future planning of the company. With the available information,
management can forecast the future growth and profit of the company.
Along with this, it is beneficial for the decision-making process of the company. By
analysing all the information accurate decision can be taken in the favour of the company.
Management can effectively use the resources so that they can generate high profit and make the
company get good growth in the market.
This is also important for the company because it helps the management to improve the
performance of the company. As it uses different tools and techniques such as variance analysis
and through this management can take different corrective measures. It is also safeguards the
asset of the company whether they are tangible or intangible and provides reliability to the
company.
This is also needed to know all the insufficient details of the company, and by
implementing management accounting, management can regulate the information and what all
informations are missing is also states by management accounting.
Technique
There are various technique available such as — Break even, Budgeting, and capital
investment appraisal which can be used to attain the objective of the company.
Budgeting
Budgeting plays a vital role in the entire management control system. As it refers to the
written report of the overall financial performance of the company. Budget can be prepared for
the specific department and unit of the company (Möller and et.al 2020 ). Generally the budget
created for a particular year but it depends on the management, they can form budget for more
than a year.

Budget is one of the essential tool and technique for the management so that they can
take accurate decision and set coordination within the department of the company. It is also used
by the management so that they can check whether the company is working as per plan or not. It
helps the management to know whether the company is on right track or not. What are the
situation arises in front of the company so that they may attain all the desired goals of the
company.
Budget is helpful to achieve the determined goal of the company and it also assists the
management to know whether their planning is working or not, or do they have to make any kind
of change in the strategies or not.
Conclusion
From the above report it has been concluded that the entire report states about accounting
fundamentals . In this report various calculations have been mentioned. Along with this
limitations of break even analysis have been elaborated here. Besides this, need to management
accounting is also mentioned in this report and how by using effective technique the end
objective of the company can be attained.

REFERENCES
Books and Journals
Kurmangaliyeva, A., Kaumenova, A. and Tastemirova, Z., 2021, July. Break-even Analysis of
Industrial Enterprises in the Regions of Kazakhstan. In 3rd International Conference
Spatial Development of Territories (SDT 2020) (pp. 109-115). Atlantis Press.
Maheshwari, S.N., Maheshwari, S.K. and Maheshwari, M.S.K., 2021. Principles of
Management Accounting. Sultan Chand & Sons
Malik, M.M., 2020. A hierarchy of limitations in machine learning. arXiv preprint
arXiv:2002.05193.
Möller, K., Schäffer, U. and Verbeeten, F., 2020. Digitalization in management accounting and
control: an editorial.