Accounting Fundamentals Homework - Wales Ltd Case Study Analysis

This accounting assignment delves into the core concepts of accounting fundamentals, using a case study involving Wales Ltd. The solution demonstrates the calculation of break-even points, profit margins under different scenarios, and the impact of advertising campaigns on profitability. Furthermore, the assignment explores the limitations of break-even analysis and the significance of management accounting, contrasting it with financial accounting. It discusses key techniques employed by management accountants, including financial preparation, standard costing, and financial statement analysis. The assignment provides detailed answers to all questions, supported by relevant references, offering a comprehensive understanding of the subject matter.

ACCOUNTING
FUNDAMENTALS

Contents
Contents...........................................................................................................................................2
QUESTION 1- Wales Ltd makes and sells product X. The current selling price is £20 and the
total of variable costs per unit is £11. The fixed costs of production are £450,000 and the
company currently sells 60,000 units..............................................................................................1
(a) Calculate the break-even point (in units and revenues) of product X for Wales Ltd.............1
(b) Calculate the profit made on sales of 60,000 units................................................................1
(c) The company will make an advertising campaign costs £100,000 and will improve the
product specifications, which will increase the variable cost per unit by £1. This is expected to
allow the company to increase the selling price to £22 and the sales is expected to be 62,000
unites. Calculate the new profit figure for the improved product................................................1
(d) Discuss the limitations of break-even analysis......................................................................2
QUESTION 2..................................................................................................................................2
(a) Discuss the importance of management accounting, and how it differs from what financial
accounting provides.....................................................................................................................2
(b) Discuss three techniques by which the management accountant can achieve the objectives
of management accounting..........................................................................................................3
REFERENCES................................................................................................................................5

QUESTION 1- Wales Ltd makes and sells product X. The current selling
price is £20 and the total of variable costs per unit is £11. The fixed costs of
production are £450,000 and the company currently sells 60,000 units.
(a) Calculate the break-even point (in units and revenues) of product X for Wales Ltd.
Answer (a)
Breakeven point - units
Units = fixed cost / (Revenue per unit or the selling price - Variable cost per unit)
450,000/ (20-11) = 450,000/9=50,000 units
Breakeven point - revenue
Revenue = fixed cost/contribution margin
Contribution margin: Selling price-Variable cost = 20-11= 9
450,000/9=50,000 revenue
(b) Calculate the profit made on sales of 60,000 units.
Answer (b)
60,000 units x 20 (Selling price) = 12,00,000 (profit before deduction of fixed cost)
Profit with deduction of fixed cost
Fixed Cost = 450,000
12, 00,000-450,000 = 750,000
(c) The company will make an advertising campaign costs £100,000 and will improve the
product specifications, which will increase the variable cost per unit by £1. This is
expected to allow the company to increase the selling price to £22 and the sales is expected
to be 62,000 unites. Calculate the new profit figure for the improved product.
Answer (c)
62,000 (units) x 22 (selling price) = 1364000 without deduction of fixed cost
With deduction of fixed cost
Fixes cost becomes 5, 50,000 because it there was an additional 100,000 cost from advertising
campaign from 450,000+100,000=5, 50,000
1364000 – 5, 50,000 (fixed cost) = 814,000

(d) Discuss the limitations of break-even analysis.
Answer (d)
The concept "break-even threshold" refers to a statistic applied in accountancy, commerce,
and manufacturing to determine the point at which entire income and spendings are equal (JIE,
2017). This technique has a number of limitations that are explained below-
 It isn't a viable concept since it implies that selling and manufacturing are always
balanced.
 Further downside of a breakeven concept analysis is that it only applies to one label,
rendering it difficult to apply to a corporation with multiple goods.
 It's unrealistic to believe that selling expenses are consistent throughout all production
units.
 Because products do not sell at the very identical cost at various production stages,
forecasts are erroneous.
 In contrast to production, selling is unstable.
 The breakeven level is the stage where, regardless of production, both income and costs
remain identical.
QUESTION 2
(a) Discuss the importance of management accounting, and how it differs from what financial
accounting provides.
Answer (a)
Budgeting, tracking, cooperation, encouragement, scheduling, and recruiting all needed
numerical method from administration. Not only must the statistical method be linked to the
ancient and modern, but also with the prospective (Nichols, 2018). In all of those sectors,
managerial accountancy must perform a critical part. Employees at all stages of administration
seek to enhance the total profitability of the company. As a result, data on staff productivity
within every sector is essential at all levels of administration so that regulators could enhance it if
necessary. Managerial accountancy seems to be the only way to meet the demand of transitional
tiers of administering. Whether there is a rise in industrial capacity, automation, or subsequent
technology advancements, it is critical to maintain corporate framework. In terms of retaining an
acceptable level of oversight in a firm, managers needs set standards for all types of behaviour.

Difference between managerial accountancy and financial accountancy
 Finance accountancy is frequently used to evaluate a company's revenue and efficiency.
Management accountancy can help you figure out what's wrong and how to fix it.
 Fiscal accountancy includes the whole company, whereas management
accountancy provides more specific information. Management accountancy focuses on
revenue breakdowns by source, company product, client, and socio-political location.
 Monetary statements must be published at the end of each monetary year, but
management accountancy statements could be provided on a constant schedule to give
executives with pertinent data.
 There are no recognised criteria for gathering management accountancy data for
commercial purposes. Fiscal accountancy, on the other hand, should adhere to a series of
monetary principles.
 The goal of fiscal accountancy is to produce finance information that can be
communicated with both local and global businesses, as well as the broader population.
Management accountancy is concerned with the internal study of production statistics.
(b) Discuss three techniques by which the management accountant can achieve the objectives of
management accounting.
Answer (b)
Diverse accountancy methods for managers
 Financial preparation as it is the process of determining ahead of schedule which funding
operations are required for a company to attain its fundamental goals (Roy and Brown,
2016). It include establishing the company's short and longer run fiscal goals,
establishing finance management, and devising a finance approach to meet those goals.
The importance of fiscal procedures in obtaining the highest feasible yield on invested
funds cannot be overstated. The quantity of money necessary, the origins of finances, the
calculation and balance of commerce, the usage of loan and equities financing, and the
assessment of the optimum level of investing in diverse commodities are all things that
financial strategies can influence.
 Standard costing is a way of calculating and assessing deviation in order to determine the
causes, designate the responsible party, and recommend corrective measures so that

unpleasant occurrences do not occur repeatedly. This is an important part of cost
management.
 Financial statement assessment as the purpose of this research is to establish the
relevance and knowledge of the company's financial information, as well as anticipate
potential income, the need to meet current mortgage payback obligations, and the
viability of a consistent payout distribution. Reviewing income reports, pattern
evaluation, assets and liabilities, and performance metrics are some of the tools used in
this area of investigation. This study results in a data presentation that may be useful to
company leaders, shareholders, and lenders (Sugahara and Watty, 2016).

REFERENCES
Books and journals
JIE, Z.F., 2017. Exploration and Analysis on Professional Financial Skill Teaching of Applied
Undergraduate Accounting Specialty. DEStech Transactions on Economics, Business
and Management, (eced).
Nichols, L.M., 2018. The Effect of Teaching Methodology on Accounting Students' Perceptions
of Traits Important to Success. Contemporary Issues in Education Research, 11(1),
pp.9-14.
Roy, V. and Brown, P.A., 2016. Baccalaureate Accounting Student Mentors' Social
Representations of Their Mentorship Experiences. Canadian Journal for the
Scholarship of Teaching and Learning, 7(1), p.6.
Sugahara, S. and Watty, K., 2016. Global convergence of accounting education. Asian Review of
Accounting.