Kerrigan Ltd: Analysis of Breakeven and Management Accounting

This report provides a comprehensive analysis of breakeven points and management accounting principles, focusing on Kerrigan Ltd. It includes calculations for breakeven points in units and revenues, profit calculations, and the impact of product improvements. The report also discusses the limitations of breakeven analysis, emphasizing factors like competitor influence and cost assumptions. Furthermore, it explores the importance of management accounting in planning, decision-making, issue recognition, and strategic management, contrasting it with financial accounting. Finally, it examines techniques such as cash flow statements, fund flow statements, and graphical presentations used by management accountants to achieve organizational objectives. Desklib offers more solved assignments and past papers for students.

Fundamentals

Contents
INTRODUCTION...........................................................................................................................3
QUESTION 1..................................................................................................................................3
(a) Calculate the break-even point (in units and revenues) of product A for Kerrigan Ltd........3
(b) Calculate the profit made on sales of 75,000 units................................................................3
(c) Calculate the new profit figure for the improved product......................................................4
(d). Limitations of breakeven analysis.........................................................................................4
QUESTION 2..................................................................................................................................4
a. Discuss the importance of management accounting, and how it differs from what financial
accounting provides.....................................................................................................................4
b. Discuss three techniques by which the management accountant can achieve the objectives
of management accounting..........................................................................................................5
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Accounting is the procedure of recording, analysing and collecting the financial aspects of
the business. These are prepared in every financial or accounting year. This report will cover the
limitations of breakeven analysis, management accounting, its importance and techniques. For
this report, Kerrigan Ltd. Company is considered which is operating their business operations in
United Kingdom.
QUESTION 1
(a) Calculate the break-even point (in units and revenues) of product A for Kerrigan Ltd.

(b) Calculate the profit made on sales of 75,000 units
(c) Calculate the new profit figure for the improved product.
(d)Limitations of breakeven analysis.
It is the financial tool which mainly assist the company in determining stage at which an
organization is working as to whether it is in no profit and no loss position. It is the financial
calculation for the determination of number of offering which company must sell to cover the
cost. Breakeven point contains specific and limitations which are given below –
 Its limitation is that it is concerned with the fact that the competitors are not factored in
the equation. The new entrants do not affect demand of products or brings change in price
(Chalera, 2020).

 This analysis is totally depend upon the assumptions that all the cost & expenses are
separated into the fixed & variable cost components. In context of practical implications ,
it is not possible to obtain a clear cut divisions related to the pigs and also variable cost.
 It is analysed that fixed costs can be remain constant and stable at all the stages of the
activities. It is determined that fixed cost can vary beyond the specific level of the
activities.
 It is assumed that VC (variable cost), can vary proportionately with specific volume of
the results. In term of practical experience, it moves undoubtedly but not specifically in
direct proportions.
 As per the assumption, selling price may remain unchanged & provide Street revenue line
which may not be true. Selling price of goods based upon the specific factors such as
market demand & supply & also competition. So it is remaining constant.
 On the basis of assumptions, only one goats is produce & product mix can remain
unstable or unchanged is critical to find in the practices.
QUESTION 2
a. Discuss the importance of management accounting, and how it differs from what financial
accounting provides.
The importance of management accounting is that it helps in increasing the profits of the
company as the company is made cost conscious which assist in avoiding the extra expenses of
organization. Appropriate importance of Management Accounting in context of Kerrigan Ltd. is
as follows -
 Planning - Management accounting is useful prepare a plan to gather the financial
information and also not financial information about the company. Financial manager of
the company need to forecast the market situation & contain in depth analysis about the
whole scenario of the market which can useful to prepare appropriate plan to maintain
the financial budget of the company. Management Accounting is useful to plan and
organize all the business activities in an appropriate manner (HYK, V., 2020).

 Decision making - Management accounting is beneficial to to maintain specific course
of actions about the financial information and turnover so that financial manager can
effectively take appropriate decisions. Management Accounting generate specific charts
and measure of all the facts and figures show that manager can effectively forecast of all
the financial aspects to take effective decisions (Kolin and et. al., 2021).
 Recognize the early signs of issues - Management accounting is also play a significant
role to identify the early science of the specific issues related to the business activities of
the company. Kerrigan Ltd. financial manager easily identify that if any product is not
effectively perform so that Management Accounting can useful to identify issues
(Walkshäusl, 2019).
 Strategic Management - It is determined that management accounting is also useful to
maintain the strategic management process of the organization. Kerrigan Ltd company is
maintain all the information so that manager can considered a strategic management
process in order to prepare a sales strategy which can improve the financial position of
the company (Bento, Mertins and White, 2018).
Financial and management accounting are two distinct types of accounting of which the
former is engaged in preparing the report which relates to financial health of company while the
latter is concerned with preparing report many aspects such as budget, cost, etc. (Ahmed, 2018).
It is analysed that financial accounting is considering external approach and include the activities
related with the stockholders, creditors and also regulators. Management accounting is concerned
about the internal aspects of the company which include managers, officer, superiors and
subordinates. Financial accounting only utilize monetary information in the business and
Management Accounting is utilized both monetary and non monetary information (Lee and et.
al., 2018).

b. Discuss three techniques by which the management accountant can achieve the objectives of
management accounting.
Management accountant is playing a crucial part to achieve the objective of Management
Accounting. Management accountant is responsible to manage of all the accounting activities in
the organization (Ostanaqulov, 2018). Where are various types of rules which performing by the
management accountant such as Stewardship accounting, development of accounting
information system, maintain the long term and short term planning process, manage the
optimum capital structure of the company, actively participate in the management process,
monitoring and decision making. Management accountant is liable to perform all these roll so
that accountant can effectively obtain the management accounting objective (Dahal, 2018).
There are three techniques which Management accountant can use in order to to accomplish
Management Accounting objective which are given below-
 Cash flow statement: This technique helps in providing detailed information about
inflow and outflow of cash of the company which helps in controlling cash of
organization (Pavlatos and Kostakis, 2018).
 Fund flow statement: It is mainly used to analyse the changes in the financial position of
company as it relates to from where the funds are coming and where it is used
(Alabdullah, 2019).
 Graphical and statistical presentation: The management accountant uses the graphs and
statistics to determine their information so that managers are able to make effective
decisions as it makes the information more understandable (Ahmad, 2017).

CONCLUSION
It is concluded from this that the management accounting is mainly prepared in order to
assist the management in decision making. There are many techniques to it which assist
management accountant in achieving its objectives such as cash flow statement, graphical
presentation, fund flow statement, etc.

REFERENCES
Books and Journals
Ahmad, K., 2017. The implementation of management accounting practice and its relationship
with performance in Small and Medium Enterprises sector. International Review of
Management and Marketing. 7(1).
Ahmed, M.N., 2018. Outsourcing relationship management: accounting in the decision
mix. Journal of Business Strategy.
Alabdullah, T.T.Y., 2019. Management accounting and service companies' performance:
Research in emerging economies. Australasian Accounting, Business and Finance
Journal, 13(4), pp.100-118.
Bento, R.F., Mertins, L. and White, L.F., 2018. Risk management and internal control: A study
of management accounting practice. In Advances in Management Accounting. Emerald
Publishing Limited.
Chalera, F., 2020. Investigating the Impact of Management Accounting in Decision Making and
Control: A Survey of the Manufacturing Sector in Malawi. Available at SSRN 3514883.
Dahal, R.K., 2018. Management Accounting and Control System. NCC Journal, 3(1), pp.153-
166.
HYK, V., 2020. Conceptual Fundamentals of Institutional Theory of Accounting. Облiк i
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Kolin, D.A., Moverman, M.A., Menendez, M.E., Pagani, N.R., Puzzitiello, R.N. and Kavolus,
J.J., 2021. A break-even analysis of tranexamic acid for prevention of periprosthetic
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Lee, M., Hong, T., Koo, C. and Kim, C.J., 2018. A break-even analysis and impact analysis of
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