Exploring Appropriate Sources of Finance for Startup Businesses: A Focus on Manufacturing Sector

In this document we will discuss about Exploring Appropriate Sources of Finance for Startup Businesses and below are the summary points of this document:- The text discusses appropriate sources of finance for a startup business in the manufacturing sector, including bank loans, venture capital, personal investment, angel investors, and incubators. It mentions that bank loans are secured, have adjustable repayment schedules, and lower interest rates. Venture capital involves long-term investment in exchange for ownership stake. Personal investment and angel investors provide funding and expertise, while incubators offer resources in return for equity. Bank overdrafts and bank bills are also mentioned as potential sources of finance, but with different structures and higher interest rates.

Running head: INTRODUCTION TO ACCOUNTING AND FINANCE
Introduction to Accounting and Finance
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1BUSINESS MANAGEMENT TECHNIQUES
Table of Contents
Part 1A:............................................................................................................................................2
Part 1B:............................................................................................................................................3
Part 2:...............................................................................................................................................5
Part 3:.............................................................................................................................................12
Part 4:.............................................................................................................................................15
Part 5:.............................................................................................................................................18
Part 6A:..........................................................................................................................................20
Part 6B:..........................................................................................................................................23
References and Bibliography:........................................................................................................25

2BUSINESS MANAGEMENT TECHNIQUES
Part 1A:
List the most appropriate sources of finance for THIS business in the start-up phase. Briefly
explain why these are the most appropriate, and also discuss the reasons why other sources of
finance would not be appropriate for this company.
Sources of finance for the manufacturing of miscellaneous items:
1.Bank loans: It is completely external and long term finance also secured. It will be approved
against collateral. Repayment method/schedule can also be adjusted. The interest rates can be
less compared to other sources. Also, it guarantees money for longer period and they charge only
interest for the loan amount.
2.Venture Capital: It is a private equity given by firms to startups which have higher growth
potential in exchange for ownership stake or equity. It is a long term investment by the firm.
Investors play a major role in management decision.
3.Personal Investment or Friends & Family: It could be our savings or assets an individual
possess. Also, we can ask our friends or family members to invest or lend the money it is usually
referred as patient capital and it is repaid when startup is profitable.
4.Angel Investors: They are wealthy individuals who can also be retired executives. They also
help by providing their experience in technical and management knowledge. They also can check
your startup management and would look to take part in decisions.
5.Incubators:It is a type of organization which provides you the resources for startup it includes
marketing, cash and consulting. In return they would ask for equity so they can get benefitted from
profits in the future.
6.Bank Overdrafts: It is similar to a bank loan but has completely different structure. Company
will have permission to withdraw more money beyond its balance in the account and they have
pay interest only for the outstanding amount and interest rates are high.
7.Bank Bills: Bank would be the guarantor for this type and risk will lie on bank not on the
borrower for the repayment .They would charge certain amount of fee for being the guarantor or
for taking the risk.
Banks would be the convenient and secured for the finance as we can deposit and withdraw and
interest is very low. Also, they do not interfere in the management. There can be tax benefits
small business owners would highly benefit from this. Loan approval is lengthy and time taking
process. They also disburse only 70-80% of sanctioned amount in parts. For manufacturing of
miscellaneous items main source of funds can be from bank as everything else is sorted out.
Other sources of funds can be risky because of the interest rates, investors will be involved in
decision making where not all will be benefitted by that as they become part owner would look for
returns rather benefit of other people.

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Part 1B:
List the most appropriate sources of finance for THIS business for future expansion. Briefly
explain why these are the most appropriate, and also discuss the reasons why other sources of
finance would not be appropriate for this company.
1.Partnership: If there are more partners involved in the business then there will be plenty of
funds. Establishment of the business would be easy with less cost. Management decisions will be
internal, there will be no external involvement. Each person would be responsible for their debts
and shares. Any changes can be faster like increasing the production, wages and more like legal
structure. There might be a disagreement between the partners. Life of partnership depends on
the understanding between them.
2.Retained Earnings: It would be the best option for future expansion as it will not lead to any
change in the structure and everything will be same just a decision has to be made between the
partners or a resolution must be passed. It also increases the market value. It doesn’t add in a
liability. It doesn’t involve any outsiders so control on the firm will be same.
3.Franchising:It is one of the best options and most effective. Profits will be from the extra
sales. Owner gets an equity for using the firm name. It also increases the popularity among the
customers. It would concentrate more on purchases used for manufacturing. Training and
guidance should be given to new employees. Franchisee’s owner also gets a benefit for using the
name of established firm.
4.Venture capital: As the firms are interested to invest in startups they can also invest for
expansion of the business. If they see huge growth and profits or demand in the future of the
company. They would always work towards the betterment of the enterprises. Owner would not
be in the driver's seat anymore as they involve in management decision.
Part 1 mainly comprises of information that is used for the organization to detect the level
of different source of finance, which can help in supporting their operations. The most
appropriate source of finance has been listed in this part, which can be used by the organization
for improving their operations to support the cash requirements. From the overall evaluation, it is
detected that finance source from banks is much more convenient and secured for the
organization, as deposits and withdrawals can be conducted adequately with low interest rates. In
addition, the bank source of finance will not interfere with the management and allow full
control to the owners of the business. Furthermore, adequate benefits are mainly detected for

4BUSINESS MANAGEMENT TECHNIQUES
small business owners, as they can get tax benefits after the loans taken from banks. Hence, the
finance source of banks can eventually allow the business to conduct their operations smoothly
with low interest rates, which are mainly imposed by other sources of finance. Lastly, other
forms of business can be risky for the organization, as investors will increase their exposure in
the organization, which will negatively affect its operations (Maskell, Baggaley and Grasso
2016).
The second part mainly provides information regarding the appropriate source of finance
of different business, which can support them during the expansion process. The partnership
firms mainly gather the required funds from partner, where any debt incurred by the organization
will be distributed within the partners. Furthermore, the retained earnings are the best possible
option, which can eventually help the organization to increase their operations. Moreover,
franchising is the best possible option and effective measure, which can improve the operations
of the organization by increasing their operational capability. Lastly, venture capital is mainly
conducted used by start-ups for increasing the expansion condition of the new business, which
can surge operations of the organization. Therefore, specific sources of finance can be used for
improving the level of operations of the organization, which can raise their income in the long
run (Crawford and Wang 2014).

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Part 2:
Financial Statements-Solution
Harish Enterprises ltd
Balance sheet as at 31 December 2017
Assets Liabilities
Current Assets Current Liabilities 0
Cash
15
0
Inventory
21
5 Non-Current Liabilities
Total Current Assets 365 Bank loans 618
Mortgage loans 437
Non-Current Assets Total Non-Current Liabilities 1055
Land and Building
54
0
Plant and Equipment’s
25
0 Total Liabilities 1055
Furniture, Fixtures and Fittings
14
0
Total Non-Current Assets 930 Shareholders' Equity
Ordinary Shares 240
Total shareholders' Equity 240
Total Assets 1295 Total Liabilities and shareholders' Equity 1295
Profit and loss Statements
Balance sheet as at 31 December 2018

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Sales 1968
Cost of sales -1041
gross profit 927
Wages -143
Rent -88
Motor vehicle running expense -43
Insurance -41
Printing and stationery -24
heating and lighting -30
Telephone, postage and internet -15
Depreciation -47
Total Operating expense -431
EBIT 496
Interest -63
Profit Before tax 433
Tax(35%) -152
Net Profit 281
Dividend declared 197
Transfer to retained earnings 84
Statements of Cash flow
Balance sheet as at 31 December 2018
Cash flow from operating activities
cash received from customers
177
1
Cash paid to suppliers -965
Cash expense -384

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Interest paid -63
Prepaid expense -50
Net cash provided by operating activities 309
Cash flow from investing activities
Land and Building -640
Motor vehicles -160
Plant and Equipment’s -250
Net cash used in investing activities
-
105
0
Cash flow from financing activities
Proceeds from bank overdraft 36
Mortgage loan repayments -34
Proceeds from the issue of corporate bonds 640
Proceeds from the issue of shares 482
Net cash flow from financing activities
112
4
Net increase in cash 383
Opening cash 150
Closing cash 533

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The above table provides relevant information regarding the profit and loss account, which helps in detecting the accurate level
of net profits that is generated by the organization over the period. In addition, the table mainly highlight all the relevant information
regarding the change that has been incurred during the financial year of 2018. Moreover, the financial statement of the organization
has been depicted in the above table, where the income statement, balance sheet and cash flows statement has been adequately
depicted in the above table. From the valuation, it is detected that relevant improvements in the operations of the organization is
witnessed, where the organization has incurred profits during the financial year of 2018. Moreover, changes in the cash flow statement
of the has indicated a positive attribute, where the ending values of cash flows has increased from 150 in 2017 to 533 in 2018.
Financial Statements-Solution
Harish Enterprises ltd
Balance sheet as at 31 December 2018
Assets Liabilities
Current Assets Current Liabilities
Cash 533 Accounts payable 98
Accounts receivable 197 Income tax payable 36
Inventory 237 Dividend payable 152
Pre-paid expenses 50 Total current liabilities 197
Total Current Assets 1017 Non-Current Liabilities 483
Bank loans 618
Non-Current Assets Mortgage loans 403
Land and Building 1180 Corporate bonds 640
Motor vehicles 160 Total Non-Current Liabilities 1661
less depreciation -8
Plant and Equipment’s 500 Total Liabilities 2144

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less depreciation -25
Furniture, Fixtures and
Fittings 140 Shareholders' Equity
less depreciation -14 Ordinary Shares 486
Total Non-Current Assets 1933 Preference shares 236
Retained earnings 84
Total shareholders' Equity 806
Total Assets 2950 Total Liabilities and shareholders' Equity 2950
Reconciliation of ending cash balance
Opening cash 150
Overdraft 36
Motor vehicles -160
New shares 482
plant and equipment’s -250
Sales 1968
Accounts receivable -197
Purchases -1063
Accounts payable 98
cash expenses -384
Interest -63
Dividends 0
Tax 0
Prepaid expense -50
Reduction in mortgage loan -34
Closing cash 533

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Calculation of cost of goods sold
Opening inventory 215
Purchases 1063
Closing inventory -237
Cost of goods sold 1041
Shares calculation
New ordinary shares 246
New preference shares 236
Value of new shares 482
Depreciation calculation
Motor vehicles 8
plant and equipment’s 25
Furniture, Fixtures and Fittings 14
47
In addition, relevant change in the liabilities, equity and assets of the organization has been witnessed during the financial year
of 2018. The analysis has mainly indicated that both the total asset and liability section of the organization has mainly increased
during the financial year of 2018, as compared to 2017. The increment in current liabilities of the company has been witnessed during
the financial year of 2018, as in 2017 there was no current liabilities present in the balance sheet. There are additions in the overall
noncurrent liabilities of the companies are mainly detected in the balance sheet, which directly indicates about the increment in overall
corporate bonds that is used by the company during the financial year (Schaltegger, Burritt. and Petersen 2017). The composition of

11BUSINESS MANAGEMENT TECHNIQUES
total liabilities is relevantly low than the total assets of the organization, where the equity section has mainly provided adequate
composition in the financial statement. The adequate calculation of cost of goods sold, shares and depreciation is mainly conducted for
preparing the annual report, which can provide adequate information regarding the financial position of the company.

12BUSINESS MANAGEMENT TECHNIQUES
Part 3:
Profitability ratios 2019 2020 2021 Industry Average
Return on equity
23.5
% 24.7% 27.8% 25.7%
Return on capital employed
12.3
% 13.0% 14.6% 13.3%
Operating profit margin
13.8
% 16.4% 21.3% 14.1%
Gross profit margin
51.1
% 37.7% 15.1% 40.5%
The above table provides relevant information regarding the financial position of the
organization, where adequate ratios are mainly used for detecting the company’s health with
industry average. In addition, from the evaluation, it is detected that profitability ratios have
stated a decline in the performance of the organization over the fiscal years leaving gross profit
margin, which increased during financial years. Moreover, only the gross profit margin complies
with the industry average, while other ratios do not comply with the industry average.
Efficiency ratios 2019 2020 2021
Industry
Average
Average inventory turnover period 82.6 73.8 61.0 68.9
Average settlement period for accounting
receivables 31.9 33.3 35.5 29.0
Average settlement period for accounting
payables 36.1 37.2 36.2 43.7
Sales revenue to capital employed 89.4% 79.4% 68.7% 83.9%
The composition of the efficiency ratios has mainly indicated a positive, as well as
negative attributes, where inventory turnover period and sales revenue to capital-employed
average has mainly increased during the financial years. On the other hand, average settlement

13BUSINESS MANAGEMENT TECHNIQUES
period of accounting receivables and payable mainly declined during the financial years.
However, all the efficiency ratios are higher than the industry average, which indicates the
positive efficiency position of the management in utilizing the resource of the company
(Loughran and McDonald 2016).
Liquidity ratios 2019 2020 2021 Industry Average
Current ratio 2.36 2.12 2.01 4.65
Acid test ratio 1.52 1.36 1.31 2.79
The liquidity ratio directly provides information regarding the changes in both current
ratio and acid test ratio which has been conducted during the three fiscal years. The current ratio
of the organization as a relatively increased in value over the three-fiscal year, however it is not
adequate in context to the industry average. Moreover, the acid test ratio of the organization has
also increased during the past fiscal year, which is not complying with the values of industry
average. This mainly indicates that the liquidity ratio conditions of the organization is not
adequate, where adequate current assets need to be maintained by the management for increasing
the capability of supporting short term obligations.
Levarage ratios 2019 2020 2021 Industry Average
Gearing ratio 66.9% 66.2% 65.0% 61.9%
Interest cover
ratio 4.90 5.20
5.9
2 5.87
The leverage ratio of the organization is providing mixed signals, where he during ratio
of the company has a relatively increase, while interest coverage ratio has declined over the
period of time. The gearing ratio has a relatively increased from the levels of 65% to 66.9%,
which is relatively higher than the industry average. Furthermore, the interest coverage ratio has

14BUSINESS MANAGEMENT TECHNIQUES
relatively declined over the period and is lower than the industry average, which indicates that
the organizations profit is not suitable to incur additional debts.
Investment ratios 2019 2020 2021 Industry Average
Dividend payout
ratio 65.4% 62.7% 54.8% 45.6%
Dividend yield 6.07% 6.82% 7.55% 4.54%
Earnings per shares $ 0.19 $ 0.23 $ 0.31 $ 0.21
P/E ratio 11.1 9.3 7.3 10.4
The investment ratio depicted in the above table directly provides adequate information
regarding the current financial position of the organization. Moreover, maximum of the
investment ratio of providing a positive attributes while only the earnings per share has continue
to decline over the historical financial years. The dividend payout ratio has relatively improved
over the historical period, while it is also higher than the industry average. This directly indicates
the positive attributes regarding the investment conditions. Furthermore, the dividend yield of the
organization has declined during the financial years, while it is complying with the industry
average, which indicates that the organization is providing adequate dividend yields.
Additionally the P/E ratio of the company has also increased during the financial year, which is
complying with the industry average. This positive attributes need to be followed by the
investors while making adequate investment decisions. The earnings per share ratio of the
organization are not adequate, as it is not complying with the industry average. This mainly
indicates that the organization is not making adequate income to increase its EPS in accordance
with the industry average (De and Maroun 2017).

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Part 4:
Weighted Average cost of capital
Source of capital Cost Value Weight
Bank loans
Before-tax cost of bank loans 11.40%
Market value of bank loans 618 19.6%
Mortgage loans
Before-tax cost of mortgage loans 9.50%
Market value of mortgage loans 294 9.3%
Corporate Bonds
Credit spread 336 Basis points
Credit spread as a percentage 3.36%
Risk free rate to be used to calculate corporate bond 2.89%
Before tax cost of corporate bonds 6.25%
Face value of all bonds $640
Coupon rate 7.10%
Number of coupon payments per year 4
Total number of coupon payments 28
Total value of coupon payments per year $45.44
Value of each coupon payments $11.36
yield per coupon payment 1.5625%
value of corporate bond $671 21.2%

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Ordinary shares
Risk free rate to be used to calculate ordinary shares 3.51%
beta 1.5
market risk premium 8.54%
Cost of ordinary shares 15.89%
Number of shares 533
Ordinary share price $2.26
market value of ordinary shares $1,205 38.1%
Preference Shares
Preference dividend per share $0.09
Preference per share $1.58
Cost of preference shares 5.70%
Number of preference shares 236
Market value of preference shares $373 11.8%
$ 3,161 100.0%
Tax rate 35%
weighted average cost of capital 9.6%
The above table provides adequate information regarding the weighted average cost of capital calculation of the organization.
This mainly helps in detecting the level of capital that is used by the organization is supporting its operation. The company directly
utilizes bank loans, mortgage loan, corporate bonds, ordinary shares, and preference shares for detecting the adequate cost of capital
for the organization. from the evaluation is mainly detect that bank loans comprises of 19.6% weightage, while the cost of bank loan is

17BUSINESS MANAGEMENT TECHNIQUES
relatively at the levels of 11.40%.in addition the mortgage loans are relatively weighted at 9.3%, where the cost is at 9.50%.The
corporate Bond cost is at the levels of 6.25%, while the total weight is at 21.2%. The weight of ordinary shares is identified to be at the
levels of 38.1%, where the cost is 15.89%. Lastly the preference shares comprises of 11.8% of the actual capital, whose cost is at the
levels of 5.70%. This mainly states that the overall weighted average cost of capital of the organization is at the levels of 9.6%. The
weighted average cost of capital relatively comprises of all the sources of capital, which is used by the organization in supporting its
operation. The highest source of capital that is acquired by the organization is the ordinary shares, while corporate bonds comprises of
the second highest capital source for the company. This has mainly helped the organization to acquire the adequate level of capital for
increasing in operations throughout the fiscal years. The lowest composition of Capital that is used by the organization is Mortgage
Loans, which is conducted to increase operation of the company (Abdallah 2016).

BUSINESS MANAGEMENT TECHNIQUES 18
Part 5:
Project Evaluation
Weighted average cost of capital 9.60%
tax rate 35%
Year 1 2 3 4
Opening book
value 290 145 72.5 36.25
less depreciation -145 -72.5
-
36.25 -36.25
Closing book value 145 72.5 36.25 0
Cash flow 0 1 2 3 4 5
Revenue 150 144
138.2
4 132.71
less wages -35 -35 -35 -35
Less maintenance -10 -13 -16 -19
Less opportunity cost -17 -17 -17 -17
Less depreciation -145 -72.5 -36.25 -36.25
Incremental EBIT -57 6.5 33.99 25.46
less tax 20.0 -2.3 -11.9 -8.9
Incremental Earnings -37.0 4.2 22.1 16.6
plus, depreciation 145 72.5 36.25 36.25
initial outlay -290
net working -23 23
Salvage value 44
Less tax on profit -15.4
Incremental free cash flows -313 108.0 76.7 58.3 52.8 51.6
PV of incremental FCFs -313 98.5 63.9 44.3 36.6 32.6
NPV -

BUSINESS MANAGEMENT TECHNIQUES 19
37.1
The calculation provides all the relevant information regarding the net present value
calculation that is conducted for the organization. From the valuation detected that the
discounting rate is mainly calculated at the levels of 9.60%, while the overall tax rate is
considered as 35%. Moreover, the book value of the assets over the period of 4 years is mainly
calculated to detect the actual depreciation of the assets. This depreciation calculation will
eventually help in detecting the actual levels of tax saving that are conducted in the project. From
the calculation it is adequately depicted that the overall incremental free cash flows of the
organization is considered to be negative in nature, as the expense expenses conducted in the
initial year is not being complementary by the future cash flow. Wood (2016) argued that
discounting rate calculation can be manipulated, as organization needs to derive the values from
the actual cost of capital that is used by the company.
The cash flows anticipated for the project is relatively discounted to determine the
present value of the future cash flows. This eventually helps in selecting the actual value that will
be contributed by the project to the organization. However, the calculation of Net present value
directly indicates the negative figure, which states that the organization should not proceed with
the project, as it will incur loss for the organization. Brief (2014) indicated that net present value
calculation actually help in detecting the present value of future cash flows which allows the
organization to understand the project that could support their future operations.

BUSINESS MANAGEMENT TECHNIQUES 20
Part 6A:
Inventory Budget
2023
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Sales 140140 140140 140140 196196 196196 196196 196196 196196 196196 140140 140140 140140
Cost of goods sold 84084 84084 84084 117718 117718 117718 117718 117718 117718 84084 84084 84084
Opening inventory 200 200 200 220 220 220 220 220 220 200 200 200
Cost of goods sold -84084 -84084 -84084 -117718 -117718 -117718 -117718 -117718 -117718 -84084 -84084 -84084
Purchases 84084 84084 84084 117718 117718 117718 117718 117718 117718 84084 84084 84084
Closing inventory 200 200 200 220 220 220 220 220 220 200 200 200
Cash Budget
2022
Oct Nov Dec
Sales
14014
0 140140 140140
Purchase 84084 84084
2023
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Sales
14014
0 140140 140140
19619
6 196196 196196 196196 196196 196196 140140 140140 140140
Purchase 84084 84084 84084
11771
8 117718 117718 117718 117718 117718 84084 84084 84084
Cash received from customers
sales from 3month ago 14014 14014 14014 14014 14014 14014 19619.6 19619.6 19619.6 19619.6 19619.6 19619.6
sales from 2month ago 28028 28028 28028 28028 28028 39239.2 39239.2 39239.2 39239.2 39239.2 39239.2 28028
sales from last month 98098 98098 98098 98098 137337 137337 137337 137337 137337 137337 98098 98098

BUSINESS MANAGEMENT TECHNIQUES 21
Total cash received
14014
0 140140 140140
14014
0 179379 190590 196196 196196 196196 196196 156957 145746
Payments to suppliers
Purchase from 2 months ago 42042 42042 42042 42042 42052 58858.8 58858.8 58858.8 58858.8 58858.8 58848.8 42042
Purchase from last month 42042 42042 42042 42052 58858.8 58858.8 58858.8 58858.8 58858.8 58848.8 42042 42042
Total payments to suppliers 84084 84084 84084 84094 100911 117718 117718 117718 117718 117708 100891 84084
Cash received from customers
14014
0 140140 140140
14014
0 179379 190590 196196 196196 196196 196196 156957 145746
Payments to suppliers -84084 -84084 -84084 -84094 -100910 -117718
-
117718 -117718 -117718 -117708 -100891 -84084
Wages -330 -330 -330 -390 -390 -390 -390 -390 -390 -330 -330 -330
Operating expenses -410 -410 -410 -410 -410 -410 -410 -410 -410 -410 -410 -410
Total cash paid -84824 -84824 -84824 -84894 -101710 -118518
-
118518 -118518 -118518 -118448 -101631 -84824
Net change in cash 55316 55316 55316 55246 77669.2 72072.8 77678 77678 77678 77748 55325.80 60921.6
Opening cash 70 55386 110702
16601
8 221264 298933 371006 448684 526362 604040 681718 737044
Net change in cash 55316 55316 55316 55246 77669.2 72072.8 77678 77678 77678 77678 55326 60922
Closing cash 55386 110702 166018
22126
4 298933 371006 448684 526362 604040 681718 737044 797965
Accounts receivable budget
2023
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Opening accounts receivable 196196 140140 84084 28028 5606 -56055 -128927 -207405
-
285883 -364361 -476473 -549346
Credit sales 84084 84084 84084 84094 100911 117718 117718 117718 117718 117708 100891 84084
Payment received
-
140140 -140140 -140140 -140140
-
179379 -190590 -196196 -196196
-
196196 -196196 -156957 -145746
Closing accounts receivable 140140 84084 28028 -28018 -72862 -128928 -207405 -285883
-
364361 -442849 -532539 -611008

BUSINESS MANAGEMENT TECHNIQUES 22
Accounts payable
budget
2023
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Opening accounts payable 126126 126126 126126 126126 159770 176578 176578 176578 176578 176558 142934 126127
Credit purchases 84084 84084 84084 117718 117718 117718 117718 117718 117718 84084 84084 84084
Payment made -84084 -84084 -84084 -84094 -100910
-
117718 -117718 -117718 -117718
-
117708 -100891 -84084
Closing accounts payable 126126 126126 126126 159750 176578 176578 176578 176578 176578 142934 126127 126127
The above table provides relevant information regarding the budget, which is prepared for the organisation. In addition, evaluation of the budget directly
indicates that improvements in the accounts receivable condition and accounts payable condition is needed to be conducted by the organisation. Moreover,
improvement in the accounts receivable needs to be conducted for reducing the negative balance, which is projected in the budget. Therefore, the improvements
in the cash collection period of the organisation can adequately improve the cash budget and secure future payment to the suppliers, while increasing the cash
balance.

BUSINESS MANAGEMENT TECHNIQUES 23
Part 6B:
Break even analysis
What is the variable component of the wages cost (Per unit) $0.05
What is the fixed component of the wages cost $189,800
what is the total value of all fixed cost for this firm $599,800
What is the variable cost of raw materials (per unit) $29.40
What is total value of all variable costs for this firm (per
unit) $29.45
What is the firm's break-even point (units) 30,680
The above table provides all the relevant information regarding the break-even analysis
of the organization, which is essential to determine the minimum breakeven units that need to be
sold by the organization. The breakeven analysis provides information regarding the operations
of the organization, which can be conducted for minimizing any kind of losses from operations.
The breakeven analysis also provide adequate evaluation of the data which is currently used by
the organization and determine the measures that can be taken for obtaining no profit no loss.
this detection of the break-even analysis would eventually motivate the organization to increase
their profit level by adequately adopting adequate strategies and measures. Macve (2015)
mentioned that breakeven analysis allows the organization to formulate adequate risk
management strategies for reducing the chance of incurring loss in future.
From the analysis, it is detected that organization needs a minimum sale of 30,680 units
for achieving no profit no loss condition. Identifying the fixed and variable cost that is incurred
by the company while conducting its operations mainly derives the minimum sales value.
Variable component of wage cost, fixed components of wage cost, Total fixed cost, variable cost
of raw materials, and all variable cost of the firm is mainly used to detect the adequate breakeven

BUSINESS MANAGEMENT TECHNIQUES 24
point for the organization. Therefore, it could be understand that increasing the units for sale
from 30,680 can eventually allow the organization to generate adequate profits from operations.
Modell (2014) argued that without adequate Research and calculation the actual fixed and
variable cost is hard to determine, which can reduce the authenticity of the break-even analysis
conducted for the organization.

BUSINESS MANAGEMENT TECHNIQUES 25
References and Bibliography:
Abdallah, W., 2016. Accounting, Finance, and Taxation in the Gulf Countries. Springer.
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