Owais

Table of Contents
ASSIGNMENT 1 ........................................................................................................................................ 4
FINANCIAL VIABILITY ........................................................................................................................... 4
BREAKEVEN ANALYSIS (BA) ............................................................................................................. 4
CASE STUDY OF A BREAK DANCE .................................................................................................... 5
USEFULLNESS OF BREAKEVEN ......................................................................................................... 7
MARGINAL COSTING ....................................................................................................................... 7
ABSORPTION COSTING .................................................................................................................... 7
COST CENTRE COSTING ................................................................................................................... 8
ASSIGNMENT 2 ......................................................................................... Error! Bookmark not defined.
REGRESSION ANALYSIS ........................................................................ Error! Bookmark not defined.
STUDENT BOOK PRICE LEVEL TREND SOLUTION ................................. Error! Bookmark not defined.
STUDENT BOOKS BUDGET SOLUTION .................................................. Error! Bookmark not defined.
STUDENT BOOKS BUDGET SOLUTION WITH 3% INCREAMENT ........... Error! Bookmark not defined.
STUDENT SNACKS BUDGET SOLUTION ................................................ Error! Bookmark not defined.
CONSOLIDATED MASTER BUDGET ....................................................... Error! Bookmark not defined.
ASSIGNMENT 3 ......................................................................................... Error! Bookmark not defined.
1) PAYBACK ANALYSIS METHOD ...................................................... Error! Bookmark not defined.
2) ACCOUNTING RATE OF RETURN (ARR) ........................................ Error! Bookmark not defined.
3) DISCOUNTED CASHFLOW METHOD (DCF) ................................... Error! Bookmark not defined.
FOR PROJECT A ................................................................................. Error! Bookmark not defined.
FOR PROJECT B ................................................................................. Error! Bookmark not defined.
4) INTERNAL RATE OF RETURN (IRR) ................................................ Error! Bookmark not defined.
ASSIGNMENT 4 ......................................................................................... Error! Bookmark not defined.
ROCE ..................................................................................................... Error! Bookmark not defined.
GROSS PROFIT ...................................................................................... Error! Bookmark not defined.
NET PROFIT .......................................................................................... Error! Bookmark not defined.
STOCK TURNOVER ................................................................................ Error! Bookmark not defined.
DEBTOR PAYMENT PERIOD .................................................................. Error! Bookmark not defined.
CREDITOR PAYMENT PERIOD ............................................................... Error! Bookmark not defined.
CURRENT RATIO ................................................................................... Error! Bookmark not defined.
ACID TEST RATIO .................................................................................. Error! Bookmark not defined.



ASSIGNMENT 1
FINANCIAL VIABILITY
In simple words, financial viability is the ability of a firm or other entity to be able to continue to
accomplish its operating and other objectives and achieve its mission or goals over the long term
period.
This also provides tools and techniques to analyse if the product or project meets the profitability
criteria which include cost-benefit analysis, breakeven analysis and discounted cash flow.
BREAKEVEN ANALYSIS (BA)

Breakeven analysis is an analysis to determine the point at which revenue received equals the costs
associated with receiving the revenue and is used to check if a profit can be made.(Anonymous,
2013)

Breakeven point can be calculated by:




Fixed costs are those business costs that are not directly related to the level of production or output.
In the picture the horizontal line indicate the fixed cost. The diagonally upwards line from fixed cost
is the total cost of the project, whereas the line from the origin is the Revenue Line. Variable cost is
not included in the graph as it is the part of Total Cost, and it (VC) can be defined as Variable costs
are those costs that vary depending on a company's production volume; they rise as production
increases and fall as production decreases.
The Breakeven point is the intersection of the total cost and revenue. The area above the breakeven
point is the profit and the horizontal distance from breakeven point is the Margin Of Safety.

0
200
400
600
800
1000
1200
0 20 40 60 80 100 120 140 160 180 200
FIXED COST
REVENUE
TOTAL COST
Margin of Safety
Profit
0
200
400
600
800
1000
1200
0 20 40 60 80 100 120 140 160 180 200
FIXED COST
REVENUE
TOTAL COST
Margin of Safety
Profit

CASE STUDY OF A BREAK DANCE

UNITS
FIXED
COST
VARIABLE
COST
TOTAL COST REVENUE REVENUE
q Fc Vc = q Avc Tc = Fc + Vc R = q Ar
0 430 0 430 0 0
20 430 60 490 100 120
40 430 120 550 200 240
60 430 180 610 300 360
80 430 240 670 400 480
100 430 300 730 500 600
120 430 360 790 600 720
140 430 420 850 700 840
160 430 480 910 800 960
180 430 540 970 900 1,080
200 430 600 1,030 1,000 1,200
Avg
Variable
Cost (Avc)
3
Average
Revenue
(Ar)
5 6





FINANCIAL DECISION AT DIFFERENT SALES LEVEL


FIXED COST VARIABLE COST CAPACITY

430 3 200

IN TOTAL PER UNIT UNITS


CAPACITY 25% FULL 50% FULL 75% FULL
SALES

200

50 100 150
VARIABLE COST 3 3

3

3
TOTAL VARIABLE 600 150 300 450

FIXED COST 430 430 430 430

TOTAL VARIABLE 600

150

300

450
TOTAL COST 1030 580 730 880

SALES 200 50 100 150
PRICE

6

6

6

6
REVENUE 1200 300 600 900

REVENUE 1200 300 600 900
TOTAL COST 1030 580 730 880
PROFIT 170 -280 -130 20

TO CHOOSE A PRCE FOR THE PROJECT WE CAN USE THE FORMULA





CAPACITY 100% 25% 50% 75%
SALES 200 50 100 150
TOTAL COST 1030 580 730 880
PRICE 5.15
11.6 7.3 5.87

USEFULLNESS OF BREAKEVEN
Breakeven is useful in study of the relationship between total costs and total revenue to identify the
output at which a business breaks even, mean that neither the organisation profits nor loss.
Breakeven analysis can also be used to discover the impact of changes in output on its profit levels.
Example:
It shows the different level of profit achieved from the various levels of output which allows the
business to predict its profit levels. With this analysis firms can target to achieve a certain level of
profit.
Even breakeven can be used to shows a minimum number of units that needed to be sold so
strategies and objectives could be built around.
MARGINAL COSTING
The increase or decrease in the total cost of a production run for making one additional unit of an
item. It is computed in situations where the breakeven point has been reached: the fixed costs have
already been absorbed by the already produced items and only the direct (variable) costs have to be
accounted for.
The concept of marginal cost is critically important in resource allocation because, for optimum
results, management must concentrate its resources where the excess of marginal revenue over the
marginal cost is maximum. In comparison with absorption cost, marginal costs will be lower than
absorption costs as it does not include fixed costs.
Marginal cost is worked out by adding the variable costs and finding out how much it would take to
produce one more unit. The main advantage is that it is easy to calculate but marginal cost plus
mark-up may or may not cover all fixed cost to make profit and could end up making a loss.
ABSORPTION COSTING
Absorption costing means that all of the manufacturing costs are absorbed by the units produced. In
other words, the cost of a finished unit in inventory will include direct materials, direct labour, and
both variable and fixed manufacturing overhead.
Absorption costing helps companies to work out the true cost to the company of a particular
product. It is calculated by dividing the costs between products which involves charging of all the
costs associated with business operation separately to a particular cost centre. On contrast with the
marginal cost, absorption cost will be higher than marginal costs as it also includes fixed costs and
overheads.
The main advantage is that it spreads the sum of outgoing costs between products but the main
disadvantage is that the expenses are calculated 100% precise and you may charge more for one
product and less of other i.e. overestimated or underestimated.
COST CENTRE COSTING
A cost centre or cost centre is a division within a business which is financed from the profit margin
adding to the cost of the organization, but contributing to its profit indirectly. Typical examples
include Research and Development, Marketing and customer service.
There are some significant advantages to classifying simple, straightforward divisions as cost centres,
since cost is easy to measure. However, cost centres create incentives for managers to underfund
their units in order to benefit themselves, and this underfunding may result in adverse
consequences for the company as a whole.
Because the cost centre has a negative impact on profit (at least on the surface) it is a likely target
for rollbacks and layoffs when budgets are cut. Operational decisions in a cost centre, for example,
are typically driven by cost considerations. Investments in new equipment, technology and staff are
often difficult to justify to management because indirect profitability is hard to translate to bottom-
line figures.