Managerial Accounting, Week3,Portfolio Activity Unit 3

Portfolio Activity Unit 3 - week 3

University of the people

BUS 5110 - Managerial accounting

2020

Portfolio Activity Unit 3

This week has focused on using several cost analysis tools to determine how well products
contribute to a company’s profitability. However, all of these tools are internally used and not
required to be published outside of an organization. Instead, external stakeholders rely on the
three key financial statements reviewed in Unit 1:
● Income Statement

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● Balance Sheet

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● Statement of Cash Flows)

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If a company’s CVP analysis showed it was not operating at break-even, where on the financial
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statements might one be able to see this impact (i.e., specific line items on the statements)?
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As portfolio activities are to be self-reflective, please make sure to connect the portfolio
assignment to:
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● Your personal experiences

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● Course readings and any external readings.

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● Discussion forum posts or other course objectives that tie into your reflection.
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The Portfolio Activity entry should be a minimum of 500 words and not more than 750 words.
Use APA citations and references if you use ideas from the readings or other sources.
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In the business world, each enterprise, company, and business has to have a financial plan
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that explains thoroughly all the finance expenses. Financial statements are one of the most
important pieces of information to have handy. That is because it includes all of the company’s
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financial reports - (Income Statement, Balance Sheet, Statement of Cash Flows). Being aware of
all the finance information assists in having a clear idea of what a company needs to reach break-
even and to reach the target profit.
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When you are starting a business it is crucial to run a break-even analysis to get an
estimation of your variable costs which include ( direct materials- direct labor- sales
commission) and your fixed costs like (rent-salaries) so you can determine the price of your
product and predict when your business will generate profits. [Colleen Egan]. (What is the break-
even point for a business?. Thus, to find your break-even point your sales must be equals to your

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 Managerial Accounting, Week3,Portfolio Activity Unit 3

variable costs + your total costs. Walther, L. M. & Skousen, C.J. (2009). Managerial and Cost
Accounting. Assuming you are selling a product for(S $1000 )and the total costs (variable
V$200) and (F- fixed costs = $100,000). The equation:
(S- $ 1000 - V$200) = $800- contribution margin
(F$100,000- CM$800)= units we need to sell to achieve our break even = 125 units
(Units *Selling price )125*$1000 = $125,000 break-even
“CVP analysis is imperative for management. It is used to build an understanding of the
relationship between costs, business volume, and profitability. The analysis focuses on the
interplay of pricing, volume, variable and fixed costs, and product mix. This analysis will drive
decisions about what products to offer, how to price them, and how to manage an organization’s
cost structure. CVP is at the heart of techniques that are useful for calculating the break-even
point, volume levels necessary to achieve targeted income levels, and similar computations. The
starting point for these calculations is to consider the contribution margin”.Walther, L. M. &
Skousen, C.J. (2009). Managerial and Cost Accounting.Walther, L. M. & Skousen, C.J. (2009).

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Managerial and Cost Accounting.

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Reference:

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[Colleen Egan ].Break-Even Analysis 101: How to Calculate BEP and Apply It to Your Business.

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Retrieved from: https://squareup.com/us/en/townsquare/how-to-calculate-break-even-point-
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analysis
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Walther, L. M. & Skousen, C.J. (2009). Managerial and Cost Accounting. Retrieved from
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https://library.ku.ac.ke/wp-content/downloads/2011/08/Bookboon/Accounting/managerial-and-
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cost-accounting.pdf
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