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### Introduction - Business Analytic Module 3

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## 1.a Development of the mathematical model using cost information:

Business Analytics refers to a solution of data management and subset of business intelligence. This is refers to use of different types of methodologies i.e. statistical data analyse, Predictive data analyse and data mining etc. Mainly it used to transfer data into a useful, identify and trending information and outcomes. Main components of business analytics is –

Aggregation of data, at first to analyse the data should be organised, gathered and clear through the records which are transactional.

Mining of data, which is used to identified the established relationships between machine, statistics and database and trends. This mainly uses to analyse the large database of the business.

Identification of Association and sequences, data analytics mainly used to identifies the predictable actions which are used in the association with the other actions.

Mining of texts, text mining used to explore unstructured data and organised the unstructured data for quantities and qualities analysis.

Data forecasting, based on future events within a specific time the historical data will analysed to make estimated information.

Optimization of data,

1.b Calculation of profit and loss using the information given:

According to Peter, his budgeted annual output is 800,000 units, fixed cost amount to £120,000, variable costs is £0.80 per unit and the sales price is £4.00 per unit

Annual output – 8, 00,000 units

Fixed cost - £ 1, 20,000

Therefore, variable cost – 8, 40,000

Sales price – 8, 32, 00,000

sales – total variable 00,000 - £ 6, 25, 60,000

P/V / 25, 60,000/£32, 00,000

> – P/V ratio) – Total Fixed costs 00,000 – 0.8) - £ 1, 20,000>

 Year total output VC unit Total VC Sales unit Total sales 2022 8,80,000 0.84 739200 4.12 3625600 2023 9,68,000 0.88 851840 4.24 4104320 2024 10,64,800 0.93 990264 4.37 4653176 2025 11,71,280 0.97 1136141.6 4.5 5270760 2026 12,88,408 1.02 1314176.2 4.64 5978213.12

### 1.c Comment on costing and revenue behaviour

As it shows that before projection of this project, annual output was 800,000 units, fixed cost was £120,000, variable cost was (800000*0.80) £640000 and sales (800000*4.00) £3200000. After the projection the result shows that there was 5% increase in variable cost,

10% increase in annual output and 3% increase in sales price has made a profit in 5years graph (Chang, et al. 2019). The profit volume ratio increased in the first year of the planning after that the rest of the year profit volume ratio remained the same. First year's profit volume ratio indicates that the profit of the business this year is rising highly. After that the remaining year's profit volume ratio will fall down at 79.61% but it does not create any effect on profit, after 4 years profit has unexpectedly increased than the first year (Bellos & Tzivanidis. 2020). Due to increase in total output the effect is notified in the whole diagram. Everything will increase from variable cost to sales and profit.

As per this project if in future the business follows this path, they will create a big budget profit every single year.

Over here from the year of 2022 to 2026 total output of the company is increasing from 880,000 to 1,288,408 and variable cost over here of Darko Farms limited is being increased from £739,200 to £1,082,263. Since variable cost and total output is getting increased in these subsequent years, as seen over here in the calculation that’s why that sales figure of this company is being increased from £3,625,600 to £5,308,240 from 2022 to 2026. Over here in terms of this company the fixed cost of this company remained the same from 2022 to 2026 and the amount is £120,000. The contribution of the company from 2022 to 2026 is increased from £2,886,400 to £4,225,977. It is seen from the above table that in every section the amount is increasing except for fixed cost and the only decrease happened in P/V ratio from 2022 to 2023 and after that it remained the same (Hasanaj and Kuqi, 2019). The budgeted annual output is being derived over here by multiplying total variable cost with variable cost per unit. Over here sales price is being derived by multiplying fixed cost amount with sales price. After contribution is being calculated by subtracting, total sales with total variable cost. By that total contribution amount that is being derived is £2,560,000. Over here P/V ratio is being derived by dividing contribution with sales and after that P/V ratio amount is being derived is 80%. The profit or loss amount is being derived over here by subtracting sales value with P/V ratio and the amount that is derived from that total, fixed cost is being subtracted. After That total profit and loss amount that is derived from this is £520,000.

There are various causes behind cost and changes in the price of revenue. Those are now discussed over here below.

According to the everyday market forces, stock prices are changing day by day. The price of the stock will move up when people will start to buy stocks rather than selling to regain their invested money. The greater supply of demand will be achieved when more people will start to sell their stock rather than buying it. Because of that reason the stock prices will fall rapidly. It is very easy to understand demand and supply over here. Over here according to the calculation that is made above by the changes of business activities when expenses are impacted at that time it is called cost behaviour. Regarding the cost behaviour a business manager must be aware regarding it in terms of annual budget construction. It is done to determine the decline or spike in the cost and it is also anticipated. Regarding the cost volume, profit analysis in terms of critical aspect cost behaviour is being understood.

Where the firm sells and produces on the market the total revenue behaviour depends on it. Through the sum of all income, sales and receipt total revenue is being derived. Expected selling price and planned sales product over here are being defined in form of total revenue. In the cost behaviour, two variables are mainly taken: the first one is a variable cost and the second one is fixed cost. Over here when the cost of the activity increases at that point of time in a proportionate manner variable cost also increases. When the decrease in activity happens at that point in time-variable cost also decreases. In fixed cost, whether activity decreases or increases it does not put any effect on the fixed cost amount and it remains in terms of the figure that was previously mentioned. Another type of cost behaviour is the semi-variable cost or mixed cost. This cost is partially variable and partially fixed.

## 2. a) Calculation of correlation coefficient between advertising and sales of Nice Spray (N.S.) Ltd.:

 year advertising(x) sales(y) x² y² xy 2016 2 60 4 3600 120 2017 5 90 25 8100 450 2018 4 70 16 4900 280 2019 6 100 36 10000 600 2020 3 80 9 6400 240 Total 20 400 90 33000 1690

(Correlation - (Σx)(Σy) / √[ nΣx² - ( Σx)²] [nΣy² - ( Σy)² ]

- (20)(400) / √[5(90) - (20)²] [ 5(33000) - (400)²] - 8000 / √[ 450 - 400] [ 165000 - 160000 ] / √ 250000 / 500>

As per the math the result shows that the relationship between advertisement and sales is less than 1 so this result is completely negative.

### 2.b SCATTER DIAGRAM OF THE ABOVE DATA

From the above calculation it has been seen that when the advertisement of the company at 2 then the sales of the company at 60. Next year advertisement of the company was increased at 5 when the sales of the company increased at 90, so it expand when the advertisement of the company was increased the sales of the company also increased. It indicates that a strong relationship between X (advertisement) and Y (Sales). If the company increase their advertisement then teh company also i8ncreasev their sales.

2. C. critically analysing the comments on the impact of advertisement and sale & how the company gain the advantages from the cosmetics industries by applying relevant strategies of the market:

## 3. A As per the Operating manager's suggestion:

(£) (£) (£) (£

1. i) Sales 440000
2. ii) Variable cost:
3. Labour 102000
4. Material costs 140000

less: cheaper material costs 80000

------------

60000

-------------

162000

------------

iii) Contribution (i - ii) 278000

1. iv) Fixed costs:
3. Other fixed costs 40000

--------------

90000

-------------- 114000

--------------

Profit 164000

-----------------

As per Sales Manager's Suggestions:

(£)(£) (£)

1. i) Sales 440000

Add: Increase of 20% sales volume 88000

- ---------------

528000

1. ii) Variable cost:
2. Labour 102000
3. Material costs 140000

-------------

242000

------------

iii) Contribution (i - ii) 286000

1. iv) Fixed costs:
3. Other fixed costs 40000

-------------

90000

-------------- 45000

--------------

Profit 241000

----------------

1. Calculation of Breakeven point & Margin of safety :

Breakeven cost / contribution * sales

Margin of sales - BEP) / current sales *100

As per operating manager's suggestion

Breakeven / 278000 *>

Margin of – 180432)/>

#### As per the sales manager's suggestion:

Breakeven = 69231

Margin of ->

### 3. B Suggestions to Mansion Plc regarding the adoption of a proper plan in its business:

From the above calculation it has been shown that the breakeven point as per the operating manager is 180432 and margin of safety is 58.99% and as per the sales manager the breakeven point of the company is 69231 and margin of safety is 84.26%. A low breakeven point is better than a high breakeven point also a high margin of safety is better than a low margin of safety. A high breakeven point indicates that companies more services and product need to be sold and low breakeven point indicates the company start to make profit. so if the company follow the sales manger rules then the company will made a profit in the future.

With current and from it breakeven point is generated in terms of an operating manager is £180432 and margin of safety is derived in terms of operating manager is 58.99%. If it is discussed in terms of sales manager breakeven point is £69231 and the margin of safety in terms of the sales manager is 84.26%.

From the above calculation, it is clearly seen that the breakeven point of the operating manager is much lesser than the breakeven point of the sales manager. Over here the operating manager’s margin of safety is much lesser than the margin of safety of the sales manager.

From the discussion, it will be derived from Mansion Plc with the sales manager's suggestion.

1. C Factors must consider by the company before the commitments:

Before committing the company must focus on their sales volume. By consumes the sales volume they can sales the product or services at very cheaper cost. Quantitative and qualitative factors must need to increase sales of the company. Qualitative factors means the model of the business, advantages from the competitors and corporate and management governance. Quantitative factors deal with the growth of the company and industries. If the company focus on the both factors the Company can easily earn the much profit from the business. Mainly this both factors are requiring too involved in any committing.

1. D Benefits and the limitations of Breakeven point

Benefit of Breakeven point:

Breakeven point mainly helps to calculate the profit and loss in the various level of sales and production.

Breakeven point which focus on the sales price the chances of the changes in the profit.

The relationship between variable and fixed cost has coordinated by the breakeven point.

Also focus on the matter of the where the chances of profitability will be high.

Breakeven point has a huge benefit to analyse the corporation in a valuable process. It indicates that how many products are sales by the company to make the profit, it help to indentify that which product is most worthy for sale and which is not, mainly it indicates how much the company make the profit by sake it output.

A low breakeven point helps to make profit for the company. When it comes to the point of financial analysing breakeven point analyse the strategies of the company.

Breakeven point helps to reduce the risk for the company sometimes from the line product and investment. For calculating the breakeven point it needs to be correct data of fixed and variable cost. Breakeven point provides a suggestion for get success for the company. By the breakeven point analysis it can be possible that the company fixed their product price. It also can help to take decision to make judgement on the basis of facts. Take decision easily can make by breakeven point.

### Limitations of Breakeven point:

The fixed cost distribution at a huge number may be create a problem and it may believe that circumstance of the business will remain constant which does not matter in that case.

The production value of sales variable and fixed cost does not grow in the lockstep. Due to discount, economics buying these are the less proportionate than their output.

It is notified that the cost of variable is proportionate with volume of the output. It has moved with volume production in the correlation.

At activity level fixed cost are remain constant. After giving the activity degree it should be mentioned in the fixed expenses.

By the breakeven point the one product will created and the other product will remain constant.

In the line of straight revenue the price of the selling remains constant. This product indicates the demand in the market, supply, competitions etc.

The main assumption of the breakeven point is all the cost which is divided by the variable and fixed components. To make a difference between fixed and variable cost is my be difficult.

References

Journal

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Bellos, E. and Tzivanidis, C., 2020. Energy and financial analysis of a solar driven thermoelectric generator. Journal of Cleaner Production264, p.121534.

Chang, V., Li, T. and Zeng, Z., 2019. Towards an improved Adaboost algorithmic method for computational financial analysis. Journal of Parallel and Distributed Computing134, pp.219-232.

Corbet, S., Lucey, B., Urquhart, A. and Yarovaya, L., 2019. Cryptocurrencies as a financial asset: A systematic analysis. International Review of Financial Analysis62, pp.182-199.

Dengleri, K., Lois, P., Thrassou, A. and Repousis, S., 2019. Industry application of assessment and forecasting theories through comparative financial analysis: The case of Greek pharmaceutical industries under crisis conditions. In The synergy of business theory and practice (pp. 175-198). Palgrave Macmillan, Cham.

Edge, M., 2019. Are UK newspapers really dying? A financial analysis of newspaper publishing companies. Journal of Media Business Studies16(1), pp.19-39.

El?Haj, M., Rayson, P., Walker, M., Young, S. and Simaki, V., 2019. In search of meaning: Lessons, resources and next steps for computational analysis of financial discourse. Journal of Business Finance & Accounting46(3-4), pp.265-306.

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