Management Accounting Essay Example for Free

Management Accounting Essay Economists and accountants have diametrically opposite views of cost-volume profit (CVP) behaviour but only accountants have a CVP model that is appropriate for assisting management with decision making Ryan Bebbington Word Count 1796 Economists and accountants have diametrically opposite views of cost-volume profit (CVP) behaviour but only accountants have a CVP model that is appropriate for assisting management with decision making Cost volume profit analysis looks into the relationship between a firms fixed and variable costs and total revenues across a varying level of production. The model will give a predicted level of profit at a given level of production. There are many ways that CVP analysis can be useful for decision making, it is important to distinguish between the different applications of the Economists and Accountants interpretations, as well as other factors involved in decision making. CVP analysis is used in management decisions when forecasting production levels. To use this model effectively, Management will look at different scenarios of output, prices and costs, and see where the model predicts the firms revenues will cover its total costs. This point is known as the breakeven point. Management can investigate the effects of price increases, changing costs from fixed to variable such as salaries to commission based pay. Managers can also investigate the outcomes from decisions such as making components in house or buying in, retaining or replacing equipment and marketing decisions. They can also investigate the sales mix. By having a prediction of the effects of these variables, managers will be able to make better decisions, as they have more information. CVP is a simplified model and thus has limitations to its analysis and predictions. When managers are aware of the limitations and how to correctly use CVP analysis it can be a powerful tool. Managers must be aware that there are assumptions that are made to simplify the CVP tool, as it cannot truly model the real business, as it would be far too complicated. The economists interpretation of the CVP graph, Figure 1, is based on two main assumptions, which explain the shape of the cost and revenue curves. The first assumption, which affects the revenue curve is that the firm is competing on price competition, this means that in order to increase sales, the firm must reduce the marginal selling price of the product. This causes the firms revenue curve to level off, as the marginal revenue falls to à ¯Ã‚ ¿Ã‚ ½0, as in figure 1b. After this point the firm is selling at a negative price, causing the firms total revenue to fall. The second assumption is based on the firms cost curve, is based on economies and diseconomies of scale. The firms economies of scale cause the variable cost per unit to decrease as production increases, as in figure 1b. This can be due to any of the economies of scale, such as purchasing, where a discount for bulk buying is received, managerial, where managers can become more specialised, financial where the firm is offered lower interest rates as there is a lower risk of lending. The Total cost curve will level off as these increasing returns to scale cause the production to reach a level of most efficient output. After this the firm will experience decreasing returns to scale, as the plant is operating at a higher production level than it was designed for, causing problems in production, such as bottlenecks in the production line. This causes the average unit cost to increase again, giving the curve its shape. It is important to understand that Economists are trying to most accurately model real world situations, rather than create a tool for management decisions. The accountants CVP model, figure 2, is based on a simpler interpretation of the cost and revenue functions, this is because Accountants are not concerned with provided an accurate representation of the cost and revenue functions, instead they wish to display the relevant ranges, figure 3, of production for the firm. As this is the information that is used for short-run decision making, as this is the time frame where the information is most useful for management decision making, information for longer term decision making is required for board level decisions, to do with the long term objectives of the company. The information that the firm uses to produce its cost and revenue curves is extracted from previous operating costs and revenues, this ensures that the information is reliable. The Accountants cost function, is a straight line, which assumes that for each additional unit produced, a standard variable cost is incurred, the assumption that production will only be occurring in a relevant range means that the firms production will not alter enough to cause increasing or decreasing returns to scale. The Accountants interpretation of the fixed cost curve is different to the Economists view because it meets the Y axis at a higher point, which indicates that the Accountants believe that firms are committed to a higher minimum level of fixed costs. This is because although a firm may reduce its fixed costs to a lower level, as in the Economists interpretation, the firm can only do this by redundancies and shutting down plants. As the Accountants model only represents a relevant range, the fixed costs cannot be reduced to this level in the short run, when this interpretation is extended outside of the relevant range, a stepped fixed cost and total function will be seen, as in figure 3. The other difference is that the revenue function is linear. This is because in the short run, firms cannot change the price of their products easily; it may also be because of firms competing on non-price, rather than price competition. As Accountants make no attempt to extend the revenue function outside of the relevant range, there is no need to model the firms decrease in product price to increase demand. The Accountants interpretation of the Cost Volume Profit model is more appropriate for Management decisions, as management decisions are not concerned with long term information. This is because the Board of Directors will be making the firms long term decisions. The information that the Economists model provides, includes a lot of information outside of this relevant range, this will affect the reliability of the data in the model. The data in the model will be less reliable as it is more difficult to accurately predict the behaviour of the cost and revenue functions, outside of the relevant range, as it is not based on past sales data. It will also be more expensive to compile the information needed as it is a more complex model. It can also be argued that some managers will find it difficult to interpret the Economists model, as the information will be more complex. Managers may wish to extend the CVP model to cover longer term decisions, will need to be aware of the long term behaviour of fixed costs. In the long term, firms will have a greater control over fixed costs, they can expand capacity by increasing floor space, hiring more supervisors and upgrading or purchasing new machinery. Which will give the firms fixed cost line a step function. Other factors will also affect the firms revenue and cost curves, such as advertising strategies, changes in political, environmental, social, economical, and legal factors, such as a change in VAT rate. These factors cannot easily be planned for and are not easily shown in long term CVP analysis, which is the main reason that CVP cannot accurately model long term production. One of the features useful for decision making, is the ability to display the information in different methods, one of these is the Margin of safety. This is the difference between the expected sales and break even sales, expressed as a percentage of the expected sales. It shows management the level that sales can fall by before the companys revenue falls below the breakeven point. The information can also be displayed as two other charts. The first is a contribution chart, figure 4, in this chart, the fixed costs are shown as the difference between the variable cost line and the total cost line. The total contribution is displayed as the difference between the revenue line and the variable cost line. It is useful for showing a total contribution level at any level of output. The other presentation is the Profit volume graph, figure 5; this graph is useful because the other two charts to not directly display the profit at any given level of production as it must be calculated. The P-V graph simply displays the firms profit or loss at any given level of production. These two graphs will be useful for management decisions concerned with contribution or profits at a given level of production. Once again, the economists version of these two graphs would be far too complicated, and the information will not be reliable enough to base management decisions on. In the real world, firms will be producing multi products, and spreading the overhead costs across each of these products. A firm may wish to alter the CVP analysis to reflect their product mix. This is done by grouping production into batches. The batches revenue and variable costs will be defined as the total of the products in the batch. The values for the batch are then applied to the CVP chart in the same way as a single product. For the CVP model to be used effectively by managers, they must be aware of the assumptions made whilst preparing and gathering the information. If management are not aware of the assumptions made in the data, then they will be unable to draw relevant conclusions from the information. The assumptions i are that all other variables remain constant; there is a constant sales mix, total costs and revenues are linear functions of output, profits are calculated using variable costing, the analysis only applies to the relevant range, costs can be divided into fixed and variable elements, it only applies to the short term, and fixed costs do not change. In conclusion, the Accountants interpretation of the CVP analysis, as shown by the underlying assumptions, will allow managers to develop a more relevant understanding of the information, so that it can be used more effectively in decision making. If managers tried to use the economists CVP graph, the cost of gathering and interpreting the data would be high, as well as making the information more difficult to understand and less reliable. In the real world, the Accountants model may be considered too simplistic, as it relies on many assumptions and conditions, which are often not met. This is why it important to understand that the Accountants CVP model may not be applicable. For the CVP analysis to be effective, managers must be aware of the limitations of the model, otherwise they will be unprepared for any deviations from the outputs of the model.

Review Of ?Lawrence Of Arabia? Essays -- essays research papers

Review of ‘Lawrence of Arabia’   Ã‚  Ã‚  Ã‚  Ã‚  The movie Lawrence of Arabia had many interesting aspects about it and, according to sources, is very historically accurate. Taken place during WW with the feud between British and Turkish forces over the Suez Canal, the movie reflects a life of an individual who tries to do something about the injustice of the Arabian people. David Lean depicts Lawrence or El Lawrence as the tragic hero of the biography in order to make the story more enchanting to the reader.   Ã‚  Ã‚  Ã‚  Ã‚  Lean depicts Lawrence as the classic tragic hero by first making him of noble race. Lawrence himself is enrolled in the British army and is stationed at Cairo. Lawrence, however, dreams of bigger things and wishes to work with the Arabians first hand. Lawrence being the intelligent young officer with the big background is allowed by his superior to go and find Prince Feisel. Despite the fact that he is allowed to this because his superior can’t stand him, Lawrence moves out on a mission to find the prince. On the way to Arabia, Lawrence teams up with a tribesman to help him find his way. To his dismay, the guide is killed when they wonder into off-limits territory for the guide and the guide is killed by Sherif, a member of an opposing tribe of the guide. This strikes a feeling of injustice in Lawrence that will later lead to his tragic flaw. He finds his way to his other superior on the mission by himself and is...

Review Of ?Lawrence Of Arabia? Essays -- essays research papers

Review of ‘Lawrence of Arabia’   Ã‚  Ã‚  Ã‚  Ã‚  The movie Lawrence of Arabia had many interesting aspects about it and, according to sources, is very historically accurate. Taken place during WW with the feud between British and Turkish forces over the Suez Canal, the movie reflects a life of an individual who tries to do something about the injustice of the Arabian people. David Lean depicts Lawrence or El Lawrence as the tragic hero of the biography in order to make the story more enchanting to the reader.   Ã‚  Ã‚  Ã‚  Ã‚  Lean depicts Lawrence as the classic tragic hero by first making him of noble race. Lawrence himself is enrolled in the British army and is stationed at Cairo. Lawrence, however, dreams of bigger things and wishes to work with the Arabians first hand. Lawrence being the intelligent young officer with the big background is allowed by his superior to go and find Prince Feisel. Despite the fact that he is allowed to this because his superior can’t stand him, Lawrence moves out on a mission to find the prince. On the way to Arabia, Lawrence teams up with a tribesman to help him find his way. To his dismay, the guide is killed when they wonder into off-limits territory for the guide and the guide is killed by Sherif, a member of an opposing tribe of the guide. This strikes a feeling of injustice in Lawrence that will later lead to his tragic flaw. He finds his way to his other superior on the mission by himself and is...

Review Of ?Lawrence Of Arabia? Essays -- essays research papers

Review of ‘Lawrence of Arabia’   Ã‚  Ã‚  Ã‚  Ã‚  The movie Lawrence of Arabia had many interesting aspects about it and, according to sources, is very historically accurate. Taken place during WW with the feud between British and Turkish forces over the Suez Canal, the movie reflects a life of an individual who tries to do something about the injustice of the Arabian people. David Lean depicts Lawrence or El Lawrence as the tragic hero of the biography in order to make the story more enchanting to the reader.   Ã‚  Ã‚  Ã‚  Ã‚  Lean depicts Lawrence as the classic tragic hero by first making him of noble race. Lawrence himself is enrolled in the British army and is stationed at Cairo. Lawrence, however, dreams of bigger things and wishes to work with the Arabians first hand. Lawrence being the intelligent young officer with the big background is allowed by his superior to go and find Prince Feisel. Despite the fact that he is allowed to this because his superior can’t stand him, Lawrence moves out on a mission to find the prince. On the way to Arabia, Lawrence teams up with a tribesman to help him find his way. To his dismay, the guide is killed when they wonder into off-limits territory for the guide and the guide is killed by Sherif, a member of an opposing tribe of the guide. This strikes a feeling of injustice in Lawrence that will later lead to his tragic flaw. He finds his way to his other superior on the mission by himself and is...

Adversity in ‘Lord of the Flies’ Essay

Adversity is presented in many forms during ‘Lord of the Flies’ for the main character Ralph. It comes not only in the form of other people but a corruption of what society the boys on the island have managed to hold onto. One of the strongest forms of adversity came in the form of a strong and outspoken boy Jack; Jack often overwhelms and disregards things that Ralph, the chief of the boys on the island, has said to be done. Ralph, we can see, struggles to hold his control over the group of boys when Jack refuses to believe the importance of these jobs. Ralph’s biggest struggle against adversity against Jack happens during a time of panic and distress. We know he struggles for power as Jack ‘interrupted’ him, use of the word ‘interrupt’ shows that there is no respect between the two of them. As there is no respect, especially for the chief of the tribe, it causes adversity between the more outspoken members of the tribe and Ralph because they believe they can override his authority. Here Golding explores adversity through his language choices. His language choices can be very important when portraying adversity within the group of boys; certain words portray different levels of adversity for example ‘mutinously’ shows that there is a high level of adversity as the boys are unhappy with the situation they are in. Golding also explored adversity through the emotional turmoil of being on an adult-less island. Without adults, the children have no boundaries and therefore have to understand for themselves the boundaries of adult life; what is socially acceptable and unacceptable. They did this by making mistakes and learning from them, they do everything they to keep what society has instilled upon them; with rules and roles in their society. They have had to grow up and overcome the adversity by becoming adults and learning to survive and fend for themselves and the littluns by building their shelters and learning to hunt and ‘kill the pig’. He has explored the struggle of adversity particularly well through Ralph, this is because it easy to see how well he steps into the role of chief and protector of the group, he overcomes the adversity of growing into adult thought well. He understands what the basics are as he knows they need food, hygiene for safety and smoke signal for passing ships to see, this is obvious because he knows they need a smoke signal or they ‘will die’. One of the biggest forms of adversity with which the boys struggled was undoubtedly learning to cope and overcome the fear the littluns had instilled upon themselves associated with ‘the beast’. Golding does this by changing the way Ralph handles the crisis and changing his basic survival instincts back to that of the society the boys have left behind and learn to be compassionate towards the obviously scared young boys. This is obvious because throughout the book Ralph has been harsh, we can see this most in the first few chapters where he himself is obviously scared at the prospect of surviving with no adult help or guidance, we can see this through the way Golding has made Ralph speak and react to the other characters, such as his harshness to another key figure in the book, Piggy. An example of this is the fact that Ralph continuously tells Piggy to ‘Shut up’. However, when he understands the littluns fear of ‘the beast’, his tone softens and he understands that they need to be protected and looked after to feel safe, this is obvious because he made sure that a bigger child was there to look after them when all of them go on hunts, this shows that they have overcome their instincts to look after only themselves. However, they overcome the adversity of adjusting to life in fear of ‘the beast’ very well. They adjust everything about the way they were living, moving the fire to their beach instead of leaving it on top of the mountain where they knew the beast was. We can see he is doing this for the protection of everybody as they do it so they ‘needn’t go near-‘. The use of the word ‘needn’t’ in this context shows that Ralph is protecting the group because he’s keeping them out of what they believe to be harm’s way.

One flew over the Cuckoos Nest VS. the Grapes of Wrath -...

ONE FLEW OVER THE CUCKOOS NEST VS. GRAPES OF WRATH - COMPARATIVE ESSAY - ONTARIO UNIVERSITY ENGLISH GRADE 12 False riches, consisting of money, houses and lands, acquired by selfish means at cost to others and thereafter used selfishly, are almost always used for the oppression of other people – (Joseph Franklin Rutherford). One Flew over the Cookoo’s Nest (Ken Kesey) and the Grapes of Wrath (John Steinbeck) are two novels about oppression, rebellion and self-sacrifice. Both protagonists have been disenfranchised by oppressive societies in which people are segregated into classes and all power centralized; however, both are led to salvation and escape their confinement. The books protagonists have been†¦show more content†¦Tom Joad witnesses the police officers kill Jim and kills a police officer in turn. He flees the scene and starts his new meaning in life to band together a workers union. Tom Joad, takes the morals Jim Casy has bestowed upon him and moves town to town banding together workers trying to make a union. He realized he was deprived of all power and the only way to do this was to start a rebellion. â€Å"I got thinkin’ how we was holy when we was one thing, an’ makin’ was holy when it was one thing. An’it on’y got unholy when one mis’able little fella got the bit in his teeth an’ run off his own way, kickin’ an’ draggin’ an’ fightin’. Fella like that bust the holiness. But when they’re all workin’ together, not one fella for another fella but one fella kind of harnessed to the whole shebang- that’s right, that’s holy† - Jim Casy (GOW) This quote explains Tom and Jim’s philosophy on how work should be done and how people should be paid. Tom doesn’t see this at first but after Jim enlightens him he follows his ways. The quote means that if one man is working for another man there will always be someone unhappy, but if each man is working in unison for each other they will all be pleased. Tom takes this theory and starts a workers union to fight against the landowners low wages, this is the only way Tom can take back his deprived power. Each