Managerial Accounting Scenarios and Break-Even Analysis

This document provides scenarios and break-even analysis for managerial accounting. It includes calculation of contribution margin, break-even sales, fixed cost, variable cost, and contribution ratio.

MANAGERIAL ACCOUNTING
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Table of Contents
Scenario A..................................................................................................................................3
Scenario B..................................................................................................................................3
Scenario C..................................................................................................................................4
Scenario D..................................................................................................................................6
References..................................................................................................................................9
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SCENARIO A
Statement presenting calculation of contribution margin
Particular Amount in $
Fixed Cost 20000
Contribution Margin 20%
Statement presenting calculation of Break-even sales
Break-even sales in $
Total Fixed Cost /Company's contribution ratio
20000/.20
100000
Analysis:
Contribution margin can be referred to as the difference between sales and variable cost
which is expressed in terms of percentage (Plank, 2018). It is necessary to have higher
contribution ratio in order to cover fixed cost and administrative overhead. Further break
event point refers to the stage at which total cash inflow is equal to total cash inflow or in
other words; it can be said as no profit no loss zone (Weygandt, Kimmel and Kieso, 2015). In
order to ascertain break- even point total variable, and fixed cost is compared with the
volume of sales at which business make no loss and no profit. Thus, in the present case, it can
be assessed that sales of $100000 are necessary in order to reach no profit any loss stage.
SCENARIO B
Particular Amount in $
Selling price per Panda bear 28
Fixed Cost per month 100000
Variable cost 12
Statement presenting calculation of contribution margin
Sales 28
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Less : Variable Cost 12
Contribution 16
Contribution / sales = Contribution Margin 57.14
Statement presenting calculation of Break-even sales:
Break Even Sales (Amount in $)
Total Fixed Cost /Company's contribution ratio
100000/57.14
175008.75
Analysis:
Break –Even point is ascertained in order to ascertain the no. of units or revenue required by
an organization in order to cover the total cost including fixed as well as variable cost
(Noreen, Brewer and Garrison, 2014). In the present scenario, it can be assessed that sales of
$175008 are required to reach break even. Thus, the no. of panda bear which is required to be
sold each by the organization is: Break-even sales / selling price per bear
= $175008/ 28
= 6250.28 i.e. equal to 6251 Panda bears.
SCENARIO C
Particular
Volume 8000 68000
Total Cost 70000 190000
Variable cost = Change in total cost / Change in volume
Increase in volume 68000-8000 60000
Increase in total cost 190000-70000 120000
120000/60000
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Statement presenting calculation of contribution margin
Calculation of contribution margin Amount in $
Sales 5
Less : Variable Cost 2
Contribution 3
Contribution / sales = Contribution Margin 60%
Calculation of fixed cost
Total cost - variable cost
70000- (2*8000)
54000.0
Statement presenting calculation of Break-even sales:
Break Even Sales in $
Total Fixed Cost /Company's contribution ratio
54000/.6
90000.00
Analysis
Variable cost rate method can be applied in order to split up the total cost between fixed and
variable cost. As per the assertions of Parker and Fleischman, (2017) ,in this method variable
cost can be ascertained by the following formula: the change in total cost / change in the
volume of units. The same result in a variable cost per unit and total variable cost is
ascertained through multiplying the same with unit produced. In the present scenario, Jerry is
considering purchasing the company only in case the break-even or net income on revenue is
$80000. In the present case as the break-even is higher than required quantum. Thus the
company should not be purchased.
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SCENARIO D
Statement presenting initial break-even point prior to changes
Particular Amount in $
Deliver price for packaging 9
Variable Cost 3
Fixed Cost 60000
Contribution (Sales – Variable cost) 6
Contribution % (Contribution / sales) 67%
Break-even units (Fixed cost / contribution per unit) 10000 units
Statement presenting calculation of contribution margin
(i)
Fixed cost increases to $75000
Calculation of contribution margin %
Delivery price for packaging 9
Variable cost 3
Contribution 6
Contribution Margin % 67%
Statement presenting calculation of Break- Even point
Break-even sales in $
Fixed Cost / Contribution margin %
75000/.67
111940.30
Break-even sales in units
Fixed Cost / Contribution per unit
75000/6
12500
(ii)
Variable cost increase to $4.5
Calculation of contribution margin %
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Delivery price for packaging 9
Variable cost 4.5
Contribution 4.5
Contribution Margin % 50%
Statement presenting calculation of Break- Even point
Break-even sales in $
Fixed Cost / Contribution margin %
60000/.5
120000
Break-even sales in units
Fixed Cost / Contribution per unit
60000/4.5
13333
Break-even analysis assists in ascertaining the quantum of products required to be sold or the
sales required to be attained on a monthly or annual basis in order to cover the cost of
business (Kaplan and Atkinson, 2015). In the present case, it can be assessed that if the fixed
cost of Reliable delivery increases to $ 75000, then the breakeven point is 12500 units.
However, in case variable cost increases to $4.5 than break-even point is 13333 units. The
same interpret than variable costs have a more significant impact on break even as the initial
breakeven point is 10000 units and after enhancement in variable cost, it has been increased
to 3333 units in comparison to 2500 in case of enhancement in fixed cost. Thus, Reliable
delivery requires emphasizing on variable cost in order to attain a break even with ease.
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REFERENCES
Kaplan, R.S. & Atkinson, A.A., (2015). Advanced management accounting. PHI Learning.
US.
Parker, L.D. & Fleischman, R.K., (2017). What is Past is Prologue: Cost Accounting in the
British Industrial Revolution, 1760-1850. Routledge, New York
Noreen, E.W., Brewer, P.C. & Garrison, R.H., (2014). Managerial accounting for managers.:
McGraw-Hill/Irwin, New York
Plank, P., (2018). Introduction. In Price and Product-Mix Decisions Under Different Cost
Systems (pp. 1-5). Springer Gabler, Wiesbaden.
Weygandt, J.J., Kimmel, P.D. & Kieso, D.E., (2015). Financial & managerial accounting.
John Wiley & Sons, New York.
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