Managerial accounting is one area that managers should be very critical with. It means that this type of accounting deals with proper allocation and utilization of resources. Consequently, some techniques must be incorporated with practices in order to ensure that the corporate resources allocated are effectively used and utilized. Managerial accounting is designed to guarantee that better decisions are offered to the company. The company should ensure that it produces technicians who will help to integrate the decisions made to incorporate them in the accounting of cost. Basically, this is necessary to help the company to organize and plan on how it will run its operations. The information provided is very necessary for the planning of events of the future. Proper and enhanced management accounting ensures that better decisions are made and reduces the risk associated with bad decisions.
Breakeven point is the point at which the profits and the loss are at a balance. This analysis is used as a measure for calculating the project feasibility. This method determines the profits or losses that a company is bound to get at a certain period. Conducting this analysis involves the company to actuate some costs. Some of the costs determined include the fixed and variable costs. The method of calculating the breakeven is = to Fixed Costs/ (Unit Selling Price – Variable Costs). Variable costs= (direct labor + direct materials).
Variable costs =44 + 72=116.
Breakeven point= fixed costs/ (240-116)
BEP= fixed costs/124
In units, the BEP= Total direct costs / (Unit sales price – Unit variable cost).
Total direct costs=116
Unit sales price=240
Unit variable costs=116
The BEP=116/ (240-116) =0.94
The margin of safety is one of the ratios that are used in managerial accounting. This ratio is used to calculate the total percentage that the company needs to acquire in order to help them to surpass the breakeven point through the sales they make. This ratio is calculated by (expected sales – breakeven sales) / breakeven sales. Breakeven sales are the total sales that the company should have in order to help them to avoid plunging into losses.
Expected sales= 4,400*240=1,056,000.
MOS= (1,056,000- 960,000)/ 960,000=0.1%.
The budgeted profit is one of the best ways that a company can use to help base their performance and the kind of revenues that they want to achieve at the end of the period. The company management should ensure that at the beginning of every financial year they practice this method. The budgeted profit is achieved by revenues-expenses. This is also calculated by adding all the sales costs and the expenses, and then subtracts the sales that are projected.
The budgeted profit=960,000+ 27,840=987,840-1,056,000= -68,160.
This entails that the company is bound to enter into losses. The sales that are required by the company to acquire the profit of 192,000 are (sales +27,840) -1,056,000=192,000.
(Sales +27,840)= 1,056,000+192,000.
Sales= 1,220,160. This is equivalent to 5,084 units.
The revenue variance is an important aspect of the business. This aims at subtracting the actual and the budgeted revenue. This implies that if the actual revenues outweigh the budgeted, then the company has an advantage of a better performance. Relevant costs have different values as a result of major alternatives that were being compared. The variance = 424,270-(7,500*55) =11770. Relevant costs should be heavily considered by the management as they can influence the company to make unrealistic decisions. The total relevant costs= 7,500*17=127,500.
Absorption costing is equated to marginal costs added to fixed overhead.
Absorption costing marginal costs
Direct material 7,500*10=75,000 7,500*10=75,000
Direct labor 7,500*6=45,000 7,500*6=45,000
Variable overhead 7,500*1=7,500
Production costs 127,500 120,000
Fixed costs= 7,500
Managerial accounting is one of the most important accounting programs that a company should use. It makes it possible for the management to understand the current performance of the company. Moreover, the company can make decisions that will help the business to achieve the desired performance. This accounting should be articulated with cost accounting to help the company calculate its performance.
Bamber, L. S., Braun, K. W., & Harrison, W. T. (2008). Managerial accounting. Upper Saddle River, N.J: Pearson Prentice Hall.
Jiambalvo, J. (2001). Managerial accounting. New York: Wiley.