Break-Even Analysis, Management Accounting: A Financial Report

This report provides a detailed analysis of break-even points for Wales Ltd, including calculations for units and revenues under different scenarios, alongside a discussion of the limitations of break-even analysis. It further explores the importance of management accounting, contrasting it with financial accounting, and discusses techniques such as standard costing, financial report analysis, and fiscal planning that management accountants can use to achieve their objectives. The report offers insights into cost-volume-profit relationships, profit calculation, and the role of management accounting in organizational decision-making, highlighting the significance of quantitative information and strategic financial management.

Question

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 term "break-even level" relates to a metric used in accounting analysis, business, and the
industry to identify the mark where the total revenue and expenditures are equivalent. There are a
variety of limits to this approach, which are discussed beneath-
 Predictions that are inaccurate since goods do not trade at the same price at different
manufacturing levels.
 Sales are unreliable in comparison to manufacturing.
 The breakeven point is defined as the point at which both revenue and expenditures are
equal irrespective of output (Abdulahad, 2020).
 It's not a practical notion because it assumes that sales and production are consistent at all
occasions.
 Another disadvantage of a breakeven theory calculation is because it solely pertains to a
single brand, making it challenging for a company with several products to use.
 The notion that sales costs remain constant across all manufacturing divisions is
unreasonable.
QUESTION 2
(a) Discuss the importance of management accounting, and how it differs from what financial
accounting provides.
Answer (a)
Management required quantitative information for duties like planning, monitoring,
coordination, motivation, arranging, and recruitment. The quantitative technique should be
related not just to the past and present, but also to the future. Management accounting should
play a vital role in all of these industries. Workers at all levels of management strive to improve
the organization's overall performance. As a consequence, information on employee efficiency in
each industry is required during every level of government such that authorities can improve it if
needed. The only method to address the requirements of intermediate levels of administration is
through management accounting. It is vital to sustain business structure, if there is an increase in
production output, digitalisation, or newer technological breakthroughs. Management should

develop rules for every sort of conduct in order to maintaining an adequate amount of
supervision in a corporation (Bargate, 2018).
Difference between managerial accountancy and financial accountancy
 Timing- Financial reports should be presented at the conclusion of every fiscal term, but
managerial accounting can be issued on a regular basis to provide managers with relevant
information.
 Standards- There is also no established method for collecting managerial accounting
information for business use. On opposite end of the range, financial accounting must
follow a set of financial rules.
 Emphasis on reporting- The purpose of financial accounting is to generate monetary
data which could be shared with internal and external organisations, and also the general
public. Interior analysis of productivity data is the focus of managerial accounting.
 Effectiveness- Financial accounting is often employed to assess a firm's profitability and
productivity. Managerial accounting offers insight into what is causing a problem and
how to remedy it.
 Aggregation- While financial accounting covers the entire organisation; managerial
accounting offers more detailed insights. Managerial accounting is focused on detailed
information on profits by commodity, business offering, customer, and geopolitical
region (Cheng, 2019).
(b) Discuss three techniques by which the management accountant can achieve the objectives of
management accounting.
Answer (b)
Various managerial accounting strategies
 Standard costing: It's the method of estimating and evaluating variation to know the
reasons, identifying the person who is accountable, and propose remedial action such that
undesirable events do not even happen again. This is a necessary component for pricing
administration.
 Finance Report Analysis: The goal of this study is to determine the significance and
understanding of the corporation's finance data in addition to forecast possible revenue,
the necessary to fulfil existing debt repayment commitments, and also the feasibility of a
stable dividend payment. A few of the instruments utilised in this field of research

include examining financial statements, trend assessment, holdings and obligations, and
efficiency measures. This research produces an information visualisation which might
help firm executives, investors, and borrowers (Herawati, Dewi and Dewi, 2020).
 Fiscal Planning: Monetary planning is the act of establishing forward of time which
financing activities are essential for a business to achieve its basic objectives. It
comprises determining the firm's brief and long-term financial objectives, developing
financial administration, and developing a financing strategy to achieve such objectives.
It is impossible to overestimate the significance of financial measures in generating the
maximum potential return on investment capital. Fiscal policies could control, among
many other aspects, the amount of cash required, the sources of funds, the computation
and equilibrium of trade, the use of mortgage and equity fundraising, and the evaluation
of the best amount of investment in various assets.

REFERENCES
Books and journals
Abdulahad, A.F., 2020. The extent of the contribution of the electronic accounting education in
the development of the professional skills for the accounting techniques department
graduates. Managerial Studies Journal, 12(24).
Bargate, K., 2018. Making accounting tutorials enjoyable. Africa Education Review, 15(1),
pp.224-238.
Cheng, Y., 2019, April. Research on the Reform of Accounting Course System Guided by
Accounting Education Objectives. In 1st International Symposium on Education,
Culture and Social Sciences (ECSS 2019) (pp. 468-472). Atlantis Press.
Herawati, N.T., Dewi, L.G.K. and Dewi, G.A.K.R.S., 2020, December. Development of
Android-Based Accounting Cycle Learning Applications to Improve Technology Skills
in Accounting Students. In 5th International Conference on Tourism, Economics,
Accounting, Management and Social Science (TEAMS 2020) (pp. 98-104). Atlantis
Press.