Management Accounting and Contribution Margin Essay

Submitted By thutran307
Words: 708
Pages: 3
Open Document
REVISION
Part A:
1. Financial and management accounting and difference
Financial vs. managerial accounting
Management accountability is the manager’s responsibility to the various stakeholders of the company
To earn the stakeholders’ trust, managers provide information about their decisions and the results of those decisions
Management accountability requires two forms of accounting, namely financial accounting for external reporting and managerial (or management) accounting for internal planning and control

2. Budgets (financial statement, such as income statement, balance sheet, cash of flow)
3. Accounting principles
Accrual versus cash-basis accounting
Accrual accounting records the effect of each transaction as it occurs
Cash-basis accounting records only cash receipts and cash payments. It ignores receivables, payables and other items
In accrual accounting, revenues are recorded when earned, which is not necessarily in the same accounting period as when the corresponding cash is received

4. How to prepare financial statement

Part B:
1. Cost volume profit analysis- calculate breakeven point, contribution margin, fix cost, variable cost, margin cost, net profit
High–low method to separate fixed costs from variable costs
STEP 1: Calculate the variable cost per unit
Variable cost per unit = Change in total cost ÷ Change in volume of activity
STEP 2: Calculate the total fixed cost
Total fixed cost = Total mixed cost – Total variable cost
STEP 3: Create and use an equation to show the behaviour of a mixed cost
Total mixed cost = (Variable cost per unit × number of units) + Total fixed costs
The breakeven point is the sales level at which profit is zero: total revenues equal total costs (expenses)
Sales below the breakeven point result in a loss
Sales above breakeven point provide a profit
The income statement approach

The contribution margin approach: a shortcut

Sales revenue
– Variable costs
= Contribution margin
– Fixed costs
= Profit
The contribution margin ratio is the ratio of contribution margin to sales revenue
Contribution margin ratio = Contribution margin / Sales revenue
Breakeven sales in dollars = Fixed costs / Contribution margin ratio
Target profit is the profit that results when sales revenue minus variable costs and minus fixed costs equals management’s profit goal
Target sales in dollars = (Fixed costs + Profit) / Contribution margin ratio
The margin of safety is the excess of expected sales over breakeven sales

2. Adjusting entries, transaction, journalise. List of accounts- classify A, L, E, noncurrent assets. Financial statement- given information and accounts- understand them how to prepare- classify the accounts
Assets
An asset is a resource controlled by an entity as a result of past events that is expected to provide future economic benefits to the entity in the future
Cash
Accounts receivable
Bills receivable
Inventories
Prepaid expenses
Land
Buildings
Plant and equipment

Liabilities
A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources
Show More

Related Documents: Management Accounting and Contribution Margin Essay

Total Variable Cost Analysis Paper

You are a cost management consultant and you have been asked by a small business owner for business advice. Your client owns a chain of small, local operations that support larger caterers for special events. Your client provides the tents for outside events, the soft drinks and snacks for the children of events, along with floral and other decorative arrangements. This kind of business is extremely competitive, and your client would like to know how far she can lower her prices without losing money…

Words 1193 - Pages 5

Financial Analysis JET-2 Task 4: Activity Based Costing And Manufacturing Mix Report

JET-2 Task 4 Activity Based Costing and Manufacturing Mix Report William Gardner March 25, 2015 1. Recommend whether the company should change its costing method to activity-based costing. Activity Based Costing (ABC) is an accounting methodology which assigns manufacturing costs in a more logical manner by taking into account not only the production costs in terms of machine time and labor but the additional and often hidden costs associated with production. These hidden costs…

Words 2058 - Pages 9

Management and Performance Controllable Essay

ACTG 5P31 Advanced Management Accounting Hemantha Herath 12-1 Decentralization Prepared Preparedby by Hemantha HemanthaHerath Herath Brock BrockUniversity University 6 12-2 Why Why Decentralize? Decentralize? Decentralization  The delegation of decision making authority to managers throughout the organization Centralization Minimum freedom        Decentralization Maximum freedom Complexity of Firm’s Environment Information Specialization Timeliness of Response Conservation of Central…

Words 764 - Pages 4

Management Accounting And Cost Analysis

BUSN7031 Management Accounting and Cost analysis Introduction& cost terms Ch 1 & 2 1 Copyright ©2014 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442563377/Horngren/Cost accounting/2e Outline  Introduction to management accounting o The contemporary management accounting environment o Role of management accounting and the management control system  Cost terms: o Revised definitions o o o 2 Cost groupings Service, retail and manufacturing organisations…

Words 3123 - Pages 13

accounting review Essay

C1 accounting: Produces financial statements for measuring firm performance. Financial accounting: Provides information for external users: Investors, Creditors, Government, The public. Includes: Financial statements. Managerial a: Provides information for internal users: Managers. Includes: Budgets, Forecasts. Business types: proprietorship(proprietor-one, himself liable for company), partnership(partners-two or more, partners are liable), LLC(members, members are not personally liable. No need…

Words 1956 - Pages 8

Accounting Study Guide 16 24 Essay

Accounting Exam # 2: Chapters 15, 16, 20, 22, 23, 24 Chapter 15: Management Acc. vs. Financial Acc. TABLE15-1 Comparison of Management Accounting and Financial Accounting Areas of Comparison Management Accounting Financial Accounting Primary users Managers, employees, supply-chain partners Owners or stockholders, lenders, customers, governmental agencies Report format Flexible, driven by user's needs Based on generally accepted accounting principles Purpose of reports Provide information for planning…

Words 1273 - Pages 6

Essay about Bridgestone Behavioral Health Center: Cost-Volume-Profit (Cvp) Analysis

better understanding of how to monitor the Center’s operating and financial performance. Located in Cleveland, Ohio, Bridgestone provides prevention, intervention, and treatment services for individuals with substance abuse problems. Bridgestone’s management is concerned about its financial performance after realizing a loss in the prior year although a small profit was projected. Despite management’s concern and attention of Bridgestone’s profitability troubles, the…

Words 3359 - Pages 14

Essay about Marginal costing

OCR Business Unit 8 Management Accounting 1 What would be the cost of producing 17,ooo units • Production units Total cost £ • 10,000 • 12,000 • 14,000 • 15,000 2 150,000 170,000 190,000 200,000 Marginal Costing 3 Lesson 4 Aims and objectives • Describe how marginal cost is calculated • Prepare a marginal costing statement • Calculate the contribution • Explain what marginal costing is useful for 4 HENRY’S TEAROOM 5 Marginal costing Under this method only the variable costs of production…

Words 781 - Pages 4

Upload: Contribution Margin Ratio Essay

economy, the company's sales have increased by 30% relative to the previous year. The company has not been able to increase its capacity fast enough, so Custom Coatings has had to turn work away because it cannot keep up with customer requests. Top management is considering the purchase of a sophisticated robotic painting booth. The booth would represent a considerable move in the direction of automation versus manual labor. If Custom Coatings purchases the booth, it would most likely lay off 15 of its…

Words 747 - Pages 3

Variable Cost and Breakeven Point Essay

describes the impacts to the breakeven point if the company management needed to increase the cost of direct materials by 10% cost increase and needed to add $50,000 in fixed costs to the production facility. 1. Recommendation Whether the Company Should Change its Costing Method to Activity-Based Costing: The company is currently using traditional costing method in its business practices. Traditional based costing is a business accounting strategy which seeks to determine the cost of manufacturing…

Words 2039 - Pages 9