ADVANCED MANAGEMENT ACCOUNTING

Advanced Management Accounting

INTRODUCTION1

OVERVIEW OF THE COMPANY1

A) ECONOMIST'S BREAKEVEN CHART DIFFERS FROM THE ACCOUNTANT'S BREAKEVEN CHART1

Break Even analysis and Chart1

The Accountant's Break-Even Chart2

The Economist's Break-Even Chart3

B) CONCEPT OF FIXED COST5

Short run production5

Long run production5

Explanation of Factors of production is variable - there are no Fixed Factors6

C) BREAKEVEN POINT AND MARGIN OF SAFETY OF THE COMPANY7

Break Even Point Analysis7

Margin of Safety9

High-Low Method10

Alternative Method11

PROPOSAL 111

PROPOSAL 213

A COMPARISON BETWEEN THE TWO PROPOSALS CLEARLY STATING ANY ASSUMPTIONS MADE14

RECOMMENDATION TO THE MANAGING DIRECTOR ON WHICH PROPOSAL TO ACCEPT15

CONCLUSION15

REFERENCES16

Advanced Management Accounting

Introduction

Competition in the market is changing due to high competition and high customer's expectation. This demands companies to bring innovative and creative ideas for better outcome. At the same time companies utilize different accounting method to reduce per unit cost and to formulate a strategy that will at least recover their initial investment. Different proposal are prepared by managers and analyst that suggests favorable results. The focus of this paper would be on Cost-Volume-Profit Analysis along with it benefits and discussion on Managing Manager proposed proposal that will stop the decline in sales for the next six months and suggesting a proposal that fit to company.

Overview of the company

Grenville Ltd has been involved in manufacturing and selling a product named Naturally Green. Company started their operations in 2012 and sales were brisk due to increase in fuel prices. During second quarter company experienced a decline in sale due to decrease in fuel prices and new companies were entering into the market.

a) Economist's breakeven chart differs from the Accountant's Breakeven Chart

Break Even analysis and Chart

Break Even Analysis is basically a supply-side analysis as it only concern with the cost of sales. This analysis does not take into the consideration of the demand that might have impacted at different price level. In order words, Break Even Analysis determines a point at which net sales are equal to cost that is linked with selling a product (Lucey, 2003, p. 57).

Break Even chart represent graphically picture of Breakeven Analysis i.e. sales and cost (variable and fixed) points on graph. This should be noted that since accounting profit and economic profit differs, their graphically representation also differs. The aim of both accountant and economist is same but they use different parameter in order measure financial and economical performance of a project (Scarlett, 2005, p. 169).

The Accountant's Break-Even Chart

Accountant break-even chart consider being a traditional i.e. they are based on assumptions that costs are combination of fixed as well as variable. In the same ways selling price is always fixed and it does not dependent on production and not on the quantity being sold. The following chart is presented that states the Accountant Break Even chart. This is showing a static representation i.e. a relationship between revenues and cost at a state time (Drury, 2008, p. 182).

As the trend of selling and average cost has been assumed to be steady over the volume, the line in the above figure is linear ...