Accounting Fundamentals: Break-Even Analysis and Management Accounting

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)

Fundamentals

Contents
Contents...........................................................................................................................................2
QUESTION 1- Kerrigan Ltd makes and sells product A. The current selling price is £11 and the
total of variable costs per unit is £6. The fixed costs of production are £350,000 and the company
currently sells 75,000 units..............................................................................................................1
(a) Calculate the break-even point (in units and revenues) of product A for Kerrigan Ltd........1
(b) Calculate the profit made on sales of 75,000 units................................................................1
(c) The company will make an advertising campaign costs £10,000 and will improve the
product specifications, which will increase the variable cost per unit by £1. This is expected to
allow the company to increase the selling price to £13 and the sales is expected to be 80,000
unites. Calculate the new profit figure for the improved product................................................1
(d) Discuss the limitations of break-even analysis......................................................................2
QUESTION 2..................................................................................................................................3
(a) Discuss the importance of management accounting, and how it differs from what financial
accounting provides.....................................................................................................................3
(b) Discuss three techniques by which the management accountant can achieve the objectives
of management accounting..........................................................................................................4
REFERENCES................................................................................................................................6

QUESTION 1- Kerrigan Ltd makes and sells product A. The current selling
price is £11 and the total of variable costs per unit is £6. The fixed costs of
production are £350,000 and the company currently sells 75,000 units.
(a) Calculate the break-even point (in units and revenues) of product A for Kerrigan Ltd.
Answer (a)
Break even point - units
 Units = fixed cost / (Revenue per unit or the selling price - Variable cost per unit)
 350,000/(11-6) = 350,000/5=70,000 units
Break even point - revenue
 Revenue = fixed cost/contribution margin
 To get the contribution margin: selling price-variable cost = 11-6= 5
 350,000/5=70,000 revenue
(b) Calculate the profit made on sales of 75,000 units.
Answer (b)
75,000 units x 11 selling price = 825,000 (profit before deduction of fixed cost)
Profit with deduction of fixed cost
Fixed Cost = 350,000
825,000-350,000 = 475,000
(c) The company will make an advertising campaign costs £10,000 and will improve the product
specifications, which will increase the variable cost per unit by £1. This is expected to
allow the company to increase the selling price to £13 and the sales is expected to be
80,000 unites. Calculate the new profit figure for the improved product.
Answer (c)