Accounting Assignment: Company's Profitability

ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
QUESTION 7...................................................................................................................................1
a) Impact on company's profitability......................................................................................1
b) Implication of decisions.....................................................................................................1
QUESTION 9...................................................................................................................................2
Preparation of cost of sales budget.........................................................................................2
QUESTION 10.................................................................................................................................4
a) Preparation of cash budget.................................................................................................4
b) Manner in which difference shall be treated......................................................................5
QUESTION 11.................................................................................................................................5
a) Sales budget........................................................................................................................5
b) Production Budget..............................................................................................................6
c) Material purchase budget...................................................................................................6
d) Labour cost Budget............................................................................................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
In any business, there are many decisions which are to be taken by the management for
efficient and effective working (Turner, 2013). For this purpose, budgets are prepared in which
estimates are made which will be used to carry out different operations in an appropriate manner.
In this report, certain types of budgets will be made that are beneficial for organisations. Also,
decisions are made in respect of whether any product shall be purchased or manufactured.
QUESTION 7
a) Impact on company's profitability
Calculation of profits in two situations:
Particulars When assembly division purchased from
production division
When assembly division
purchased from outside
supplier
Sale to customers
Sale to assembly
division Sale to customers
No of units 50000 50000 50000
Selling price 15 12 15
Variable cost 10 10 10
Contribution per
unit 5 2 5
Contribution 250000 100000 250000
Total
contribution 350000 250000
Fixed cost 200000 200000
Profit 150000 50000
From the above calculation, it can be said that profits of Gallop Corporation will be
affected if the assembly division will be purchasing units from outside suppliers. Earlier, the
profits were 150000 which are now declined to 50000. This reduction is due to fixed cost which
will have to be incurred to assess whether production is done or not. So, the profitability of
company is affected in an adverse manner.
1