Question

Managerial Accounting

For each of the following managerial accounting techniques, read the definition provided in your textbook. In your post, provide an example of a personal situation where you would benefit from the use of each technique.

Break-even point

Budget

Differential Analysis: Relevant Costs & Benefits

Answer 1

Break even point:

Suppose you own a lemonade stand, and you spent $20(FC) on the lemonade stand(table, jars etc). You wish to sell each glass of lemonade for $1(SP). The cost of making a glass of lemonade is $0.20. (VC). Break even point (BEP) means the total number of units that must be sold in order for the company to generate enough revenues to cover all of its expenses.

Therefore here, BEP would be

Fixed cost(FC)/SP/unit - VC/unit

= 20/1-.02 = 25 units. or 25 glasses of lemonade have to be sold to cover all costs.

Budget:

Budgeting technique would help me in allocating my monthly allowance received from parents. As it teaches us how to allocate money to various expenditures effeiciently.

Differential Analysis: Relevant Costs & Benefits
in situation of deciding whether to take car or bus to work this technique would be used. Eg: the roundtrip cost of bus shall cost $5 per day and on the other hand car would cost $15 per day due to added costs of insurance, gas. This would result in differential of $10 in relevant cost between the two options. Therefore taking the bus would be a better option.