Accounting Fundamentals: Break-Even Analysis and Management

This report provides an overview of accounting fundamentals, focusing on break-even analysis and management accounting techniques. It includes calculations for break-even points in units and revenues for Kerrigan Ltd, along with profit calculations under different scenarios. The report also discusses the limitations of break-even analysis and highlights the significance of management accounting, contrasting it with financial accounting. Furthermore, it explores three key techniques used by management accountants—marginal analysis, financial statement analysis, and budgetary control—to achieve organizational objectives. The report emphasizes the importance of these accounting practices in systematically recording transactions, analyzing financial data, and supporting effective decision-making within an organization. Desklib offers students access to similar solved assignments and past papers.

Accounting Fundamentals

INTRODUCTION
The accounting process is divided into five key steps: recording, interpreting, categorizing,
analyzing, and reporting financial data. Recording financial transactions is the first and most
basic step in the accounting process. This report is going to identify about accounting
fundamental and their importance in the company in order to become effective in the
marketplace and maintain their financial stability.
QUESTION 1
(a) Calculate the break-even point (in units and revenues) of product A for Kerrigan Ltd.
Given information
Selling price 11
Variable cost per unit 6
Fixed cost 350,000
Selling units 75000 units
Break even in units = Fixed cost / sales price – variable cost
= 350,000 / 11 – 6
= 350,000 / 5
= 70,000 Units
Break even in revenues = Fixed cost / Contribution margin ratio
= 350,000 / 375000/825000
= 350000 / 45%
= £777777.77
Contribution margin ratio = contribution / sales

= 5*75000 / 11*75000
= 375000 / 825000
= 45%
(b) Calculate the profit made on sales of 75,000 units
Particulars Amount
Sales 75000*11 825000
Less: Variables 75000*6 450000
Contribution 375000
Less: Fixed cost 350000
Profit 25000
(c) Calculate the new profit figure for the improved product.
New given information
Selling price 13
Variable cost per unit 7
Fixed cost 350,000
Selling units 80000 units
Advertising cost 10000
Particulars Amount
Sales 80000*13 10,40,000
Less: Variables 80000*7 560,000
Contribution 480,000
Less: Fixed cost 350000
Profit 130,000

(d) Discuss the limitations of break-even analysis
It is very tough to divide in separate the variable and fixed cost clearly. Break even
analysis the kind of Concept which is relying on the assumption that every cost in expenses can
be clearly divided in separated into variable and fixed components (Tucker and Schaltegger,
2016).however it may not be possible to accomplish appropriate division of cost into fixed and
variable types. Another limitation of the break in analysis point is that this concept concerns the
fact that the rivalries errant factored into the particular equation. The new competitors to the
Marketplace could create impact on the demand of the product or causes the company to change
their prices so these all kind of activities affect the breakeven point of the organisation.
Discuss the significance of Management Accounting and how it differs from what financial
accounting provide
Management accounting is different from financial accounting because there are generally
several kind of differences among the financial and Management Accounting full stop the first
difference is that the management accounting is a kind of Concept which is presented to the
Organization in general communities and the financial accounting is the time of Concept which
is prepared for an external audience. Financial accounting is the kind of Concept which
concentrating on reporting to the external users in the financial statements which based on the
GAAP (Alfraih and Alanezi, 2016). Management accounting is the kind of Concept which
analyze the reports non financial information and financial in order to support the managers to
make decisions and fulfill the organizational goals and objectives in an appropriate manner. The
major objective of the managerial accounting is to maximize the profitability of the organization
and minimize the losses. This is the accounting which is concerned with representing of the data
and information in order to protect the inconsistency in the financial which support the managers
to make important and effective decision for the organization. Planning directing controlling all
is these kinds of activities are considered in the Management Accounting. Accounting techniques
are very important for the organization in order to achieve their goals and objectives and get it
positive outcomes for the organization as it is become very important for the company to follow
every activities and accounting techniques in an appropriate manner so that they can get more
success and become successful in the Marketplace (Nyamute, Lishenga, and Oloko, 2017).
Discuss three techniques by which the Management Accountant can achieve the objectives of
Management Accounting
Marginal analysis the kind of Concept which is concerned with the incremental advantages
of the optimizing production. Marginal analysis the kind of the fundamental and important
techniques for the organization in context of managerial accounting. it involved and includes
several kinds of activities like the calculation of the break-even point so that the organization can
analyze their performance and work on it ( Ho and Booth, 2017). There are many three kinds
objective of the management accounting information system is located at the appropriate data for
costing the services like products and other object of the interest to the particular management.

To get is the information for the organization in order to formulate planning controlling and
evaluating the continuous improvement programs. Furthermore is to provide appropriate
information for the decision making so that the company can become effective and take effective
decision for the organization. There are several important Tools and techniques which are used
by the organization in management accounting like financial planning the main objective of the
business organization is to improve the profits of the organization and get more success.
Financial statement analysis cost accounting budgetary control marginal costing standard costing
cash flow analysis fund flow analysis these are the important Tools and techniques which are
used by the organization in the Management Accounting (Athanasakou, 2019). Is all activities
and concepts are very important for the organization and it is very important for the company to
follow and conduct maintain appropriate budget for the organization so that they can get more
success and become effective in the Marketplace as it is very important for the company to get
more positive outcomes in order to become a factor and for getting new opportunities.
Accounting's goals in any organization are to systematically record transactions, classify and
analyze them, create financial statements, assess the financial condition, and assist in decision
making using financial facts and information. Internal accounting information serves three major
purposes: assisting an organization in achieving its goals, objectives, and mission; reviewing and
rewarding decision-making performance; and analyzing previous performance and future
orientations. The following are some fundamental accounting concepts: The idea of accruals.
Revenue is recorded when money is generated, while costs are recorded when money is spent.
Auditors will only approve a company's financial statements if they were produced using the
accruals method.

REFRENCES
Books and Journal
Tucker, B.P. and Schaltegger, S., 2016. Comparing the research-practice gap in management
accounting: A view from professional accounting bodies in Australia and
Germany. Accounting, Auditing & Accountability Journal.
Alfraih, M.M. and Alanezi, F.S., 2016. Accounting students’ perceptions of effective faculty
attributes. Journal of International Education in Business.
Athanasakou, V., 2019. Earnings quality and book-to-marketin the cross section of expected
returns. 34190693X.
Ho, C.S. and Booth, L., 2017. Fundamentals and Country Specific Determinants of FDI:
Evidence from United States and Malaysia. Pertanika Journal of Social Sciences &
Humanities, 25(2).
Nyamute, W., Lishenga, J. and Oloko, M., 2017. The relationship between investor behavior and
portfolio performance at the Nairobi Securities Exchange.