Cost accounting and break-even analysis

Published on August 31, 2017   16 min

Other Talks in the Series: Accounting Records and Accounts

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Hello, this is Huw Morgan, from the Alliance Manchester Business School. This is the seventh talk in a series of lectures on accounting records.
So far in the series, our focus has been on financial accounting, the reporting to external parties using principles and methods that ensure a fair representation of financial position and performance. This session will consider how the management of a business will use more detailed, timely, accounting information to inform their internal decisions. We shall turn again to our friend Shawn to illustrate how cost and revenue information on one of his products can be used to determine a minimum quantity to sell in order to just manage to cover his costs or what we call break-even.
Thus, there are many uses of accounting information, there are only two strands of accounting. Financial accounting aims to meet the needs for financial information of all external uses. Management accounting aims to meet the needs of the managers who are concerned with the internal functioning of the business. The main differences between the two are in the type and timing through reports. The amount of detail, the range, and quality of the information, and also the rules and regulations required for each. Management accounting reports are for internal use only and so, there are no regulations to follow, nearly the requirement that the information is useful for decision-making.