Managerial Accounting: Break-Even And Profit Analysis

Midterm:
Jose Barela
Managerial Accounting 2025

For the second part, answer the following questions. Submit this portion of the midterm as a Word document.
1. You want to use break-even and target profit analysis with respect to the introduction of a new product in the marketplace. Your manager says you are wasting your time because the best determination of profitability is the income statement after this product has been introduced. Explain why your manager is wrong.
In order to fully understand the process of profitability within a business, we must understand what break-even and target profit analysis represent and the function that each provides. The cost of doing business includes the use of fixed costs and variable cost. The break-even
While all financial statements include certain elements related to profitability, such as retained earnings in the balance sheet and operating cash flows from the statement of cash flows, the income statement directly shows profitability of a company by providing information on net income for a specified accounting period. An income statement can use different formats and have various reporting elements, depending on a company’s business activities. The income statement is simply an accrual accounting which helps determine direct income and expenses, what is not so important is payment per-say but rather much more interested in the time it takes to produce the product. In the business world this would mean that recognizing expenses is secondary to the recording of income before there is cash in hand. The income statement can essentially mask a struggling company or in some cases inadequate accounting procedures. The manager is wrong because too many other factors have not been taken into consideration as mentioned previously. The manager has not conducted further analysis into what it takes to produce the product based on the fixed and variable cost, therefore he does not know whether the product even produced a profit or is failing to meet
The fact that your organization under applies or over applies overhead is an indication of a problem with the people in charge of applying such overhead. Defend or attack this statement.
I am going to defend this statement even though a portion of it has some merit and could indicate lesser of a problem than it might appear. Operating a business is a complex business that requires everyone aboard to do their part, hence putting blame on the people in charge might not be so hard to accept. I would have to agree that some responsibility within the organization does apply to those in charge of ensuring under or over applying overhead, however we must understand what overhead constitutes. Simply stating that there is an indication of overhead within and organization does not automatically mean that there is indication or concerns for problems by those in charge. Overhead cost is an ongoing expense that is used to operate a business but should not be associated with the products and services being offered because they are not directly associated with profits. Manufacturing overhead also include cost that is more appropriately to be treated as cost of all outputs like overtime premium, cost of idle time, utilities cost. Because applying overhead is an estimated guess that some businesses apply at the beginning of the year to compensate, therefore some balance of overhead is bound to be over- or under-applied at the end of the year. Proper and accurate accounting for these difference