Leaders International Company (LIC)
Leaders International Company (LIC) currently produces plastic containers, supplied to both the
household and industrial units. LIC has created a management accounting department in addition to
the financial accounting department to address the management accounting issues facing the
company. You have been recently recruited as a management accountant and assigned to head the
new department. However, Mr Douglas, a member of the board, is still arguing that there is no need
for the new department as Financial Accounting and Management Accounting are the same.
The company introduced a new product last year for which it is trying to find an optimal selling price.
Marketing studies suggest that the company can increase sales by 5,000 units for each £2 reduction
in the selling price. The company’s present selling price is £70 per unit and variable expenses are £40
per unit. Fixed expenses are £540,000 per year. The present annual sales volume (at the £70 selling
price) is 15,000 units.
The market research has also shown that the product will attract more customers and raise large
amount of revenue to the firm in the future. However, there is always a debate within the company
accounting department on how to calculate the performance (profit). The chief financial accountant
believes that absorption costing does a better job of matching costs with revenues thus presents more
accurate profit figure than variable costing.
Requirement:
You are required to write a management report to the management of Leaders International
Company directors in which the following points should be discussed.
With relevant examples discuss and distinguish management accounting and financial
accounting in modern businesses.
Discuss the roles that management accountant plays in business organisations.
A computation of your breakeven analysis. The use of management tools such as breakeven
analysis.
Whether you agree or not with the argument of the chief financial accountant. Why or why
not?
A detailed Literature Review of the differences between Management and Financial
accounting, roles of management accounting in business, and the management accounting
tools you have used such as breakeven analysis, costing methods
