Managerial Accounting

An important purpose of management accounting is to provide managers with relevant information for decision-making. Companies of all sorts must make product decisions. management’s decision-making process and a decision making approach called “Incremental Analysis”.

Moreover, To manage any size business you must understand how costs respond to changes in sales volume and the effect of costs and revenues on profits. A prerequisite to understanding cost-volume-profit (CVP) relationships is knowledge of how costs behave.

I-             Cost Volume Analysis  – CVP

Ø  Explain variable, fixed, and mixed costs and the relevant range.

Ø  Apply the high-low method to determine the components of mixed costs.

Ø  Prepare a CVP income statement to determine contribution margin

Ø  Compute the break-even point using three approaches

Ø  Determine the sales required to earn target net income and determine margin of safety.

Ø  Use CVP analysis to respond to changes in the business environment.

II-            Incremental Analysis

Ø    Describe management’s decision making process and incremental analysis.

• Incremental analysis approach

• How incremental analysis works

• Types of incremental analysis

Ø    Analyze the relevant costs in various decisions involving incremental analysis.

• Special price order

• Make or buy

• Sell or process further

• Repair, retain, or replace equipment

• Eliminate an unprofitable segment or product