Probability

Management Accounting

As the managerial accounting is a phase of accounting that is concerned with the information provided to managers, the planning and controlling operations will be effective. The information will be regarding the feedbacks of operations, activities and finances of the company. These activities require efficient monitoring. The provision of good information for the implementation of managerial accounting will result in coming out of finished products in time. The non value added activities are also taken into account to provide the required information. The further information provided by the company is regarding organizational charts, performance reports, cross check art cycle, planning methods, control cycle, processing and engineering, raw materials, segments, setup , staff. These are provided by taking into consideration the put time and total quality management. ( Department of Defence, 2007) 1
1.1 Breakeven Chart: In preparing a chart the breakeven point for the activities company that creates profit is important. This involves the fixed costs and variable costs. These values for the product cetnrex are as follows.
It was estimated that the variable cost per unit is 10 GBP. The fixed cost is estimated at 25,000GBP. The variable cost of 10,000 units as mentioned will be 10×10,000 = 1,00,000GBP. The following graph shows number of units in X axis and cost in thousands of pounds on Y – axis. The fixed cost is shown as 25,000 GBP. 2
The revenue line is plotted after plotting the breakeven chart. The sales price is multiplied by number of units and this amount is considered as output. The sales price for the product of Derailler gears is given as 14 GBP, the total revenue can be calculated as 14×10,000= 140000. The total revenue line and variable cost lines are in different colors. The point where the two lines will intersect denotes the breakeven point. The breakeven point indicated in the following graph is 1, 25,000 GBP. The profit will be 1, 40,000-1, 25,000 = 15,000GBP on the Centrex product. 3
2.2 Breakeven Level of Output: The fixed costs of the products are estimated at 25,000 GBP. The variable costs will not be more than 1,00,000 GBP. This plugs the maximum costs at 1,25,000 GBP. As the company has planned to sell the units at 14 GBP per unit, the minimum revenues accrued due to the sales will be 1,40,000 GBP and this ensures a minimum profit of 15,000 GBP. This means that the marketing and sales targets reach the breakeven when the total sales revenue is 1,40,000 GBP. The extra revenue accrued after that point will be the extra profit and the 15,000 GBP mentioned above can be considered as the minimum profit by selling the 10,000 units of Centrex. The total portion encompassed by the graph is divided into two portions. The top potion denotes the profit and the lower represents the probability of loss. Though the probability of loss is more in this venture, the possibility of gaining can be termed as more as the analysis is breakeven as fixed and variable costs prevail over the aspects considered in the analysis and the reason is explained in the next subsection (2.3)
2.3 Percentage Margin Safety: The outcome obtained by subtracting the breakeven sales from the forecasted sales is termed as percentage margin safety. It can also calculated by dividing the operating income by net sales. As we considered the breakeven

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