The document outlines key topics for a management accounting course, focusing on group assignments and fundamental concepts of cost accounting, including break-even analysis. It emphasizes evaluation criteria for group projects, the importance of proper referencing, and breaks down cost classifications essential for decision-making. Additionally, it provides an example calculation of the break-even point for a manufacturing firm.

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MNGT 601 : Accounting for Managers
(Management Accounting)
Di Wang
Lecturer in Accounting
di.wang@lancaster.ac.uk

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Today
• Discuss your group assignment 1.
• Introducing basic concepts of cost accounting;
• Break-even analysis;
• Questions.

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Group Project 1 – Marking Criteria
1. Whether the argument makes sense?
2. Whether the argument can be supported by the data?
3. The quality of writing.
4. The format of references.

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References
• In-text reference: Kaplan and Norton (1992)….
• End-text reference:
• Kaplan, R. S., & Norton, D. P. (1992). The balanced scorecard: measures that
drive performance. Harvard Business Review. 71-79.

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References
Important academic journals:
• Harvard Business Review;
• Management Accounting Research;
• Journal of Management Accounting Research;
• Accounting organisations and society;
• The Accounting Review.

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Cost Accounting
• What is a cost?
• Why do we need cost information?

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Cost Classification

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Direct and indirect costs

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Cost for decision-making
• Relevant costs (revenues): future costs (revenues) changed by a
decision.
• Sunk costs: costs of resources already acquired and will be
unaffected by choice amongst alternatives.
• Opportunity costs: cost which measures the opportunity that is
lost or sacrificed when the choice of one action requires an
alternative to be given up.

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Contribution margin
• Contribution margin: Selling price – variable cost per unit
• Portion of the selling price not consumed by variable costs.

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Break-even point
• Total Cost = Total Revenue (Profit = 0)
• Fixed Cost + Variable Cost X Units = Selling price X Units
• Fixed Cost = (Selling price - Variable Cost)/ Units
• Units = Fixed Cost/(Selling price - Variable Cost)
• Units = Fixed Cost/ Contribution Margin

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Example
• Ellinger & Co. manufactures a single product: Pens. Their
maximum production level (full capacity) for next year is 50,000
pens. The fixed costs amount to £20,000 for the year. VARIABLE
costs are 50p per pen. Selling price is £1.60p per pen. How many
pens will the firm have to produce and sell before it recovers its
total costs (‘breaks even’)?

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Solution
• Units = Fixed Cost/(Selling price - Variable Cost)
• Units = Fixed Cost/ Contribution Margin
• = £20,000 / (£1.60 – £0.50)
• = 18, 182 units
• The breakeven level of output is considered significant because
unless the business achieves at least this level of output (and
sales), it will not recover all of its costs (fixed and variable).