Management Accounting - Desklib

This article discusses the importance of Management Accounting and the concept of Cost-Volume-Profit (CVP) analysis. It explains the assumptions made in CVP analysis and its role in decision-making. The article also includes a table showing various calculations for Crystal Wellness Center. Subject: Management Accounting, Course Code: Not mentioned, Course Name: Not mentioned, College/University: Not mentioned.

Running head: MANAGEMENT ACCOUNTING
Management Accounting
Name of the Student:
Name of the University:
Author’s Note

1
MANAGEMENT ACCOUNTING
Table of Contents
Requirement of Task 3.....................................................................................................................2
Requirement to Task 4.....................................................................................................................4
Reference.........................................................................................................................................8

2
MANAGEMENT ACCOUNTING
Requirement of Task 3
Normal View
Figure 1: (Table Showing Promotional Budget for Crystal Wellness Center)
Source: (Created by Author)

3
MANAGEMENT ACCOUNTING
Formula View
Promotional Budget
Item Price(excl
GST) GST Price (incl
GST)
Quanity
Required
Total
Budgeted
Value
Horizon
tal Half
Page ad
in The
Paramatt
a Times
2533 =C5*10% =C5+D5 1 =F5*E5
Digital
Foyer =250+30+35 =C6*10% =C6+D6 3 =F6*E6
Bus
Shelter
Poster
=650+550+30
+35 =C7*10% =C7+D7 1 =F7*E7
Mediu
m Digital
Billboard
=2500+45+65 =C8*10% =C8+D8 1 =F8*E8
Printed
Billboard
=4000+395+6
00 =C9*10% =C9+D9 1 =F9*E9
A6 two-
sided
Flyers
=350+(259+3
8) =C10*10% =C10+D10 2000 =(E10/1000)*F
10
TOTAL =SUM(C5:C
16)
=SUM(D5:D
16)
=SUM(E5:E
16)
=SUM(F5:F
16)
=SUM(G5:G
16)

4
MANAGEMENT ACCOUNTING
As per the plan of the management of Crystal Hotels a luncheon is planned for the
opening day of Wellness Center. In order to reach out to the existing and new customers of the
business, the management has undertaken expenses for promotional activities which is shown in
the table above. As per the budget, the management has kept aside an amount of $ 35,350 in
order to promote the wellness center among the customers. The above table shows that the
management has expended significantly on printed billboards which is the most costly among
other promotion medium used by business and it is also considered to be one of the most
effective form of promotion medium.
Requirement to Task 4
Normal View
Figure 2: (Table Showing various calculations for Crystal Wellness Center)
Source: (Created by Author)

5
MANAGEMENT ACCOUNTING
Formula View
CVP ANALYSIS
CM =80-35
CMR =C3/80
Break-even (units) =45000/C3
Break-even ($) =C5*80
Number of units of service required to
earn a target net profit of $ 100, 000
=(45000+100000)/C3
The concept of Cost-Volume-Profit (CVP) analysis refers to an analytical tool which is
used for the understanding the relation which exist between volume, cost, prices and profits of a
business. In other words, Cost-Volume-Profit analysis states the behavior of profits in a reaction
to changes in the prices and volume of a particular commodity (Klemstine & Maher, 2014). The
technique of CVP works due to effective comparisons between cost of operating and producing
goods, the amount of goods sold and the profit which is generated by the business from the sale
of such goods.
In most of the businesses nowadays, manager uses CVP analysis for taking important
decisions regarding sales of business. Companies uses this analysis in the decision-making
process regarding which product is to sold and in how much quantity (Machuga & Smith, 2013).
With the help of CVP analysis, managers can effectively estimate how much products the
business needs to sell so that the company can reach a no profit no loss situation. This position is

6
MANAGEMENT ACCOUNTING
also known to be breakeven point. In this way, CVP analysis can also be used by the business for
determining the number of units which are to be sold by the business in order to generate a
determined level of operating income for the business (Baral, 2016). Therefore, it is clear that the
technique forms an integral part of the profit planning process and thereby also forms part of the
managerial decision-making process.
The assumptions which are undertaken by the business in case of CVP analysis and the
following assumptions are made for the purpose of analyzing and conducting CVP analysis of a
business. The assumptions are given below in details:
 All necessary costs of the business such as manufacturing, administrative and overhead
costs which can be either identified as fixed in nature or variable in nature (Walther &
Skousen, 2014).
 The selling price per unit of the product is considered to be constant and changes in
activity are the only factors which affects the costs of the business.
 It is also assumed that all units which are manufactured are sold during the year.
The importance of CVP analysis is very useful in the overall revenue generation of the
business. CVP analysis provides insights into inter relational factors and the effects of the same
on the profits which is generated by the business. The relationship which exist between cost,
volume, profits of the business are essential in the overall decision-making process of the
business. Therefore, it is clear that CVP relationship is very crucial in the process of budget
estimations and planning for profits of the business (EFinanceManagement.com., 2018). In the
planning for profits of the business, it is very useful in determining the maximum sales which the
business needs to achieve in order to generate revenue for the business. The methods is very

7
MANAGEMENT ACCOUNTING
useful for the purpose of estimating the different combinations which are essential to generate
profits which are essential for the business.
In addition to this, CVP analysis can bring about a change in the dynamic management of the
business and is essential in the decision-making process of the business. The implication of CVP
decision-making process can help management to predict and evaluate the implications of short
term decision regarding fixed costs of the business. In addition to this, the analysis of CVP will
also help in making long-term decision-making process (Jakupi, Statovci & Hajrizi 2017). The
selling prices and profits of the business will be help the management on making profits plans on
a continuous basis. The analysis of CVP analysis considers marginal costs, fixed costs and
profits of the business for the purpose estimating the relevant computations.
As per the computations of Contribution Margin (CM) for Crystal Wellness center is shown
to be $ 45 and the contribution margin ratio is shown to be 56%. The breakeven analysis shows
the minimum units which the business needs to sale for the purpose of ensuring the business
covers the fixed costs of the business. The breakeven analysis in units show 1000 units and
breakeven in dollars is shown to be $ 80,000. The above figure 2 also shows the number of units
which the business needs to sale for achieving a net profit of $ 100,000 is shown to be 3222
units.

8
MANAGEMENT ACCOUNTING
Reference
Baral, G. (2016). Cost–Value–Profit Analysis and Target Costing with Fuzzy Logic
Theory. Mediterranean Journal of Social Sciences, 7(2), 21.
EFinanceManagement.com. (2018) Cost Volume Profit Analysis | Define, Assumption, Pros,
Cons, Importance.. Retrieved 14 August 2018, from
https://efinancemanagement.com/financial-analysis/cost-volume-profit-analysis
Jakupi, S., Statovci, B., & Hajrizi, B. (2017). Break-Even Analysis as a powerful tool in
Decision-Making. International Journal of Management Excellence, 9(3), 1169-1171.
Klemstine, C. F., & Maher, M. (2014). Management Accounting Research (RLE Accounting): A
Review and Annotated Bibliography. Routledge.
Machuga, S., & Smith, C. (2013). A Case Method Approach of Teaching How Cost-Volume-
Profit Analysis is Connected to the Flexible Budgeting Process and Variance
Analysis. Journal of Accounting and Finance, 13(6), 178-192.
Walther, L. M., & Skousen, C. J. (2014). Cost Analysis. Bookboon.