Accounting Fundamentals: Break-Even Point Analysis and Management

This report provides a detailed analysis of accounting fundamentals, focusing on break-even point (BEP) analysis and management accounting techniques. It includes calculations for break-even point in units and revenue for Kerrigan Ltd., profit calculations based on different sales volumes, and a disc...Read More

ACCOUNTING
FUNDAMENTALS

TABLE OF CONTENTS
QUESTION 1...................................................................................................................................3
a) Break even point......................................................................................................................3
b) Profit made on sale..................................................................................................................3
c) New profit figure.....................................................................................................................3
d) discussing the limitations of break even analysis ...................................................................4
QUESTION 2...................................................................................................................................4
a) .................................................................................................................................................4
b) Discussing the techniques with management accountant can achieve objectives of
management accounting ..............................................................................................................5
REFERENCES................................................................................................................................1

QUESTION 1
a) Break even point
BEP = Fixed cost / Contribution per unit
= 350000 / 5 (11-6)
= 70000 Units
Break even point in revenue: 70000 * 11
= 770000
from the above calculation it can be identified that the break even revenue for the Kerrigan
Ltd. In addition to this, the units of 70000 need to be developed by the organization in order to
obtain the situation of no profit or loss. Break even point will provide assistance in gaining
proper knowledge.
b) Profit made on sale
Sales 825000 (75000 * 11)
Less:
Variable cost 450000(75000 * 6)
Contribution 375000
Less:
Fixed cost 350000
Profit 25000
On the basis of above table it can be signified that profitability from making ale of
75000 units is 25000.
c) New profit figure
Sales 1040000 (80000 * 13)
Less:
Variable cost 560000 (80000 * 7)
Contribution 480000
Less:

Fixed cost 350000
Profit 130000
The net profit figure achieved from the above illustrated table it can be identified that
the company will be able to generate profitability of 130000.
d) discussing the limitations of break even analysis
There are few limitations of utilizing BEP in organizational process in order to identify
situation where it can cover all expenses. The foremost drawback of using this specific analysis
technique is that it is based on various assumptions that all cost and expenses can be clearly
separated into fixed and variable components. In general it is not possible to make proper
classifications between variable and fixed expenses which is not possible and become difficult
to implement.
It is assumed that all the fixed cost associated with it is constant at all the level of
production. In addition to this, it is one of the major issue that organization faces executing the
particular action (Angsoka and Aliludin, 2020.). This is as well assumed that all variable cost
concerned with organizational process keep on varying. On the basis of this two assumption it
can be articulated that output of organization highly get affected from it.
In break even analysis it is as well though that break even analysis has the disadvantage
of paying attention on selling price to be unchanged. It gives proper revenue lien stream in for
achieving success (Cao and et.al., 2021). In practical world selling price keeps on changing
which is largely get affected from the prevailing demand and supply situation. BEP does not
take this into practice while making decision. Product mix will remain unchanged which is
difficult to found in practice.
From the stated information it can be identified that it includes various unrealistic
assumption into consideration that lead to provide irrelevant decision. These limitations need to
highlighted while including this into important decision making procedure. It helps in
analysing the extent to which it can result in taking irrelevant decision making.

QUESTION 2
a)
Management accounting is concerned with identifying, measuring, analysing and
interpretation and communicating financial information so that strategic decision can be made.
Thee are various areas in which management accounting play crucial role and ensures that
organization get benefited from this.
Importance of management accounting includes planning, decision making,
identifying lack areas, strategic management, etc. there are various benefits that companies
irrespective of scale of operation derives by implementing management accounting. It
provides assistance in making effective planning fro managing monetary resources
(Mahmoudian and et.al., 2021). It assists in getting proposition to achieve appropriate
knowledge so that proper decision can be taken. Management accounting measures
performance so that prevailing lacking area can be identified in turn higher efficiency can be
achieved by implementing suitable action. There are various objectives of organization which
needs certain level of funds so that proper accomplishment can become possible.
Management accounting aims at setting target fro each division in priorly so that
checking lacking areas so that executing proper action can become possible. Optimum
utilization of resources becomes possible by applying management accounting into operational
practices (Maheshwari, Maheshwari and Maheshwari, 2021). It gives ability to give better
services to customers by offering quality products at fair prices. Reduced cost, optimum
utilization of resources, etc enable the firm to set higher profitability margins. This allows firm
to be raise its liquidity b y generating larger level of gains. Reliability and relevancy in
business procedure can be attained by having management accounting.
In comparison with financial, management accounting focuses on both monetary and non
monetary information. Financial accounting pay attention on covering only monetary data
therefore it is specific. Management accounting can be prepared at any time as per the
requirement whereas financial accounting is formulated at the end of accounting period.

b) Discussing the techniques with management accountant can achieve objectives of
management accounting
There are various objectives of management accounting like declining cost, proper decision
making, eliminating irrelevant aspects, increasing efficiency and profitability, etc. Management
accountant can sue following techniques
Trend analysis and forecasting
it is basically concerned with identifying patterns that are prevailing due to variations
in product cost. This is one of the crucial activity that is largely concerned with identifying
unusual patterns which can be eliminated by implementing efficient ways to overcome such
issues (TRUHACHEV, KOSTYUKOVA and BOBRISHEV, 2017). Management accountant
can largely give consideration to this tool to make significant forecasting of unforeseen
circumstances for which proper action can be made.
Inventory valuation and product costing
it is associated with examining actual cost of products & services that are generally
involves making assessment of available resources in turn market forces can be met (. This
technique will beneficial for management accountant to meet its long term objectives.
Constraints analysis
This is basically identifying prevailing actions which are hindering organizational
performance. In addition to this, it play significant role in removing aspects which are lowering
profits, revenue, etc. that will provide assistance in desirable position.
These are the techniques which helps in gaining the ability to analyse the prevailing
situations in effectual manner so that objectives can be attained and sustainability in industry
can be promoted in effectual manner.

REFERENCES
Books and journals
Angsoka, R.H. and Aliludin, A., 2020. Unit Cost and Break-even Point Analysis in “RHA”
Bistro. Asian Journal of Accounting and Finance, 2(2), pp.90-103.
Cao, Y. and et.al., 2021. Break Even Point Analysis of Liquefied Natural Gas Process and
Optimization of its Refrigeration Cycles with Technical and Economic
Considerations. Energy, p.121643.
Maheshwari, S.N., Maheshwari, S.K. and Maheshwari, M.S.K., 2021. Principles of Management
Accounting. Sultan Chand & Sons.
Mahmoudian, F. and et.al., 2021. Inter-and intra-organizational stakeholder arrangements in
carbon management accounting. The British Accounting Review, 53(1), p.100933.
TRUHACHEV, V.I., KOSTYUKOVA, E.I. and BOBRISHEV, A.N., 2017. Development of
management accounting in Russia. Revista Espacios, 38(27).
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