Accounting Fundamentals: Break-even Point Calculation, Profit Analysis, and Management Accounting Techniques

This study material covers topics such as break-even point calculation, profit analysis, and management accounting techniques. It also discusses the importance of management accounting and its difference from financial accounting. Additionally, it explores three techniques through which management accountants can achieve the objectives of management accounting.

MODULE CODE: LCBB4001
ACCOUNTING
FUNDAMENTALS

Table of Contents
QUESTION 1...................................................................................................................................2
a. Calculation of break- even point.............................................................................................2
b. Profit when 75000 units will be prepared...............................................................................2
c. New profit...............................................................................................................................3
d. Limitation of BEP...................................................................................................................3
QUESTION 2...................................................................................................................................3
a. Importance of management accounting and difference from financial accounting................3
b. Three techniques through which management accountant can achieve objectives of
management accounting..............................................................................................................4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

QUESTION 1
a. Calculation of break- even point
Particulars Formula Figures
Selling price per unit 11
Less: Variable cost per unit 6
Contribution per unit
Selling price per unit -
variable cost per unit 5
Fixed cost 350000
BEP (in units)
Fixed cost / contribution per
unit 70000
BEP (in value or revenue)
BEP (in units) * selling price
per unit 770000
Interpretation- from the above calculation it is clear that the BEP units is 70000 and this reflects
that this is the position where the company will be in no profit and no loss situation. This means
that if the company will produce beyond the 70000 units then they will start earning more of
profits.
b. Profit when 75000 units will be prepared
Particulars Cost per unit no of units sold
Selling price per unit 11 75000 825000
Less: Variable cost per unit 6 75000 (450000)
Contribution per unit 5 75000 375000
Less: Fixed cost (350000)
Total profit 25000
Interpretation- when the company will be earning the units of 75000 then the profit earned by the
company will be 25000. This is particularly because of the reason that the selling price is 11 and
the number of units sold is 75000 so the total sales value is 825000. Further after deducting the
variable cost and the fixed cost from the total sales then the profit will arrive which is 25000.

c. New profit
Particulars Cost per unit no of units sold
Selling price per unit 13 80000 1040000
Less: Variable cost per unit 7 80000 560000
Contribution per unit 6 80000 480000
Less: Fixed cost (350000)
Less: Advertising cost (10000)
total profit 120000
Interpretation- with the help of the advertising campaign the selling price of the company
increased to 13 per unit and the number of units produced is 80000. So after deducting all the
fixed cost and the advertising cost and variable cost from the sales value of 1040000 the profit is
arrived at 120000.
d. Limitation of BEP
 Cost: fixed cost do not remain constant, and variable cost do not always proportionate. so
it is difficult to separate fixed and variable cost and BEP does not considered semi
variable cost.
 Sales price: sales price remains constant at all level of output it does not change at
proportionately
 Growth and expansion: BEP does not assume condition of growth and expansion but in
organizations, the operation undergoes the growth and expansion element (Alborov and
et.al., 2017).
QUESTION 2
a. Importance of management accounting and difference from financial accounting
The management accounting is defined as the process of making the reports of the
business which assist the manager in taking decision relating to growth and development of
business (Ameen, Ahmed and Abd Hafez, 2018). the management accounting is important for
business in the following manner-

The most significant importance of the management accounting is that this assist the
company taking effective decision of the business (Rikhardsson and Yigitbasioglu, 2018). This is
particularly because of the reason that when the company makes the use of accounting
information in order to take proper and effective decision for the benefit of the company.
Another major importance of using management accounting is that this assist the
company in proper planning for attaining all the aim and objectives of the business. this is
particularly because of the reason that the past accounting information provides a base to the
company and this assist in proper and effective planning.
In addition to this another major importance of management accounting is implement
Cost Analysis. If any company need to decide the price of any product at a particular time then
accounting records helps for getting cost price of the product, by adding profit ratio in cost price
we can get price of the product. Accounts classified the cost between direct and indirect so we
remove irrelevant cost and find out exact cost.
Difference between MA and FA
Management accounting (MA) Financial accounting (FA)
Under this company makes use of financial
accounts in order to take decision for company.
The financial accounting is defined as the
process through which financial transaction are
recorded and profit or loss is generated.
This is optional for company that is if they
want then only they can make it.
It is compulsory for the company to prepare the
financial accounting.
The major audience for MA is the internal
parties.
The major users of financial accounting
information are both internal and external.
b. Three techniques through which management accountant can achieve objectives of
management accounting
There are different types of management accounting technique which assist in achieving
the objectives of the management accounting which are as follows-
Budgetary control- this is a technique in which the company prepares a budget that is
estimates the future working and try to do the operation in that budgeted amount only. The
budgetary control provides a guidance to the company and the employees that how they have to

do work and this assist in attaining the objective of effectively using the resources of the
company (Pelz, 2019).
Financial planning- this is another major type of tool which assist in attaining the proper
and effective working of the company. the major reason for this is that when the company uses
the effective financial planning tool then this provides proper guidance to the company that how
they will be managing the work of the company.
Variance analysis- this is another major important technique which assist the company in
managing the operations of the business. the major reason for this is that under variance analysis
the efficiency of company is measured. Under this the actual performance of the company is
being measured with the standard performance of the company. this assist the company in
attaining the objective of increasing the performance of the company (Management accounting:
definition, function, objectives, roles, 2021). The major reason is that when the company will
compare the actual performance and will provide the real view of the company and its position.

REFERENCES
Books and Journals
Alborov, R.A., and et.al., 2017. The development of management and strategic management
accounting in agriculture. Journal of engineering and applied sciences, 12(19), pp.4979-
4984.
Ameen, A.M., Ahmed, M.F. and Abd Hafez, M.A., 2018. The Impact of Management
Accounting and How It Can Be Implemented into the Organizational Culture. Dutch
Journal of Finance and Management, 2(1), p.02.
Pelz, M., 2019. Can management accounting Be helpful for young and small companies?
Systematic review of a paradox. International Journal of Management Reviews, 21(2),
pp.256-274.
Rikhardsson, P. and Yigitbasioglu, O., 2018. Business intelligence & analytics in management
accounting research: Status and future focus. International Journal of Accounting
Information Systems, 29, pp.37-58.
Online
Management accounting: definition, function, objectives, roles. 2021. [Online]. Available
through: https://www.iedunote.com/management-accounting#:~:text=All%20management
%20work%20is%20accomplished%20by%20decision%20making.&text=It%20uses
%20accounting%20data%20to,%2C%20funds%20flow%20analysis%2C%20etc.