Working Capital Management: Importance and Benefits

Running head: ACCOUNTING AND FINANCE
1
ACCOUNTING AND FINANCE

Running head: ACCOUNTING AND FINANCE
Table of Contents
Question 1..................................................................................................................... 3
Question 2..................................................................................................................... 5
Question 3..................................................................................................................... 6
Question 4..................................................................................................................... 8
References................................................................................................................... 10

Running head: ACCOUNTING AND FINANCE
Question 1
Solutions
A Contribution in pounds
£
750,000.00
Contribution per unit 750000 100
7500 units
The contribution per unit of the company is pound 750000 and 100 in terms of the contribution
per unit. The contribution is calculated after deducting the variable costs and the relevance of the
contribution is to get an idea of the raw profit that is not inclusive of the fixed costs (Hughes,
2016).
B Breakeven point
in units
Fixed costs 180000 1800
Contribution per unit 100 units
The breakeven point in units is calculated by dividing the fixed costs and the contribution per
unit. This is the level which is required by the company to be maintained. Beyond this level the
company cannot lower down the volume at the same price otherwise the company would have to
incur the losses (Wildavsky, 2017).
C Margin of Safety
in units
Actual sales-breakeven
point 5700 27.14

Running head: ACCOUNTING AND FINANCE
Selling price per unit 210
percentage of sales
Actual sales - breakeven
point
£
1,197,000.00 76%
Actual sales
£
1,575,000.00
The margin of the safety depicts the percentage the company needs to maintain from the point of
view of the safety. In order to balance the demand and the supply of the customers it is also
important to know about the margin of safety (Steiner, et al 2017).
D Calculation of units
Sales 5905 210
£
1,240,000.00
Materials
£
450,000.00
Variable costs
£
225,000.00
Variable overheads
£
150,000.00
Total costs
£
825,000.00
Contribution
£
415,000.00
Less: Fixed overheads
£
180,000.00
Desired Profit
£
235,000.00