Accounting Fundamentals: Techniques, Importance, and Limitations

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 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 referred to as the procedure of the data entry as well as recording,
analysing, summarising and reporting. These data relate to the financial transactions of
corporations and businesses. Operations of the business enterprise over the accounting period
which is the key to prepare the financial statements. The organization makes use of the accounts
in order to make decisions relating to cost assessment and planning. This report will deal with
the management accounting, its importance and how it varies from financial accounting. Further
it will include techniques of management accounting and limitations of breakeven analysis.
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%