MANAGEMENT ACCOUNTING.

Running Head: MANAGEMENT ACCOUNTING
MANAGEMENT ACCOUNTING
Name of the Student
Name of the University
Author Note

1MANAGEMENT ACCOUNTING
Table of Contents
Task 2.........................................................................................................................................2
Task 3.........................................................................................................................................4
Reference..................................................................................................................................12

2MANAGEMENT ACCOUNTING
Task 2
2.0 Analysis of the Unit Costs
Marginal cost is the cost that are added with the help of producing one additional unit
of the product or the services. It helps in determining the point at which the organization will
be able for achieving economies of scale. Moreover, absorption costs helps in indicating that
all the manufacturing costs is being assigned to the units produced. It is the managerial
accounting method, which accounts for fixed and variable overhead costs for producing the
particular products. The unit cost that is calculated by the marginal cost method is 144 and by
the absorption costs is £154. Moreover, the actual costs that is calculated is £155.11.
It means that if the company considers marginal costing, then the unit costs is £144
and in case if the company considers absorption costing method, then the unit costs is that is
higher that is £154. Hence, it is advisable for using absorption costing because under this,
after considering fixed and variable cost, the standard unit costs is £154 as the actual cost is
£155.11 (Banerjee 2014).
Analysis of the Profits
The profit that is calculated by using the marginal costing method of Dairy Crest
Limited is £18 and the profit that is calculated from the absorption costing is £24.800. Hence,
absorption method should be considered for the calculation of the profit and loss account, it is
because it considers both the fixed as well as variable costs overhead as compare with that of
marginal cost, where only variable costs are considered. Moreover, absorption method is used
always for the preparation of the financial accounts as this method is accepted by the Inland
Revenue and under this stocks are not undervalued.

3MANAGEMENT ACCOUNTING
The difference between the two methods is £6000 that is because of the increase in
the stock’s value. Hence, absorption method should be considered because it is giving more
profit as compare to marginal costs (Banerjee 2014).
2.1 Application of the Management Accounting Techniques: Variances and BEP
Analysis of the Variance
The material price variance calculated is 18,000. The material usage variance is
129,600. Moreover, the labor rate variance is 24,750 and lastly, the efficiency variance is
126,000. Hence, the material price variance is favorable that is good, however, it be because
of uses of labor that are unskilled, increases in the material usage because of the depreciation
of the plant and equipment. Hence, it needs to be checked the reasons of actual favorableness.
Further, the material usage variance is favorable, however, favorable material usage may be
because of purchasing of the materials of the lower quality that of the standard set. Hence, the
actual reasons of the favorableness of materials usage needs to be checked. Moreover, the
labor rate variance is adverse that means that the rate of variances is high for the production
that is the issue and it needs to be checked for the reasons of variances. Lastly, the efficiency
variance is favorable that means that the efficiency of the labor that is utilized during the
period is favorable (Kaplan and Atkinson 2015).
Analysis of BEP
The Break-even quantity in quantity terms is 2858 units. Moreover, Break-even point
in terms of value is 571,428. The actual unit produced is 4800 units that is more than the
break-even units that is favorable for the company. Moreover, the break-even point in value
is 571,428 and the actual revenue of the company is 960,000 that is higher than the break-
even point. Hence, the company is producing the units and earning the revenue that are
higher than the break-even point (Lakmal 2014).