Business Analytics: Mathematical Model, Costing and Revenue Behaviour, Advertising Impact on Sales, and Break-Even Analysis for Basu Plc

This report focuses on business analytics principles to enhance decision-making power of Basu Plc. It includes mathematical model development, income statement preparation, graph development for five-year projection, costing and revenue behaviour analysis, advertising impact on sales, and break-even analysis.

BUSINESS ANALYTICS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BOD.....................................................................................................................................3
PART A...........................................................................................................................................3
(a) Development of mathematical model using the cost information of DC Ltd........................3
(b) Preparation of Income statement of DC Ltd using the appropriate information....................3
(c) Graph development in spreadsheet for DC Ltd five-year projection.....................................4
(d) Comment on costing and revenue behaviour in general, in relation to DC Ltd before and
after projection.............................................................................................................................5
(a) Calculation of correlation coefficient between advertising and sales of Nice Wear Ltd.......7
(b) Scattered diagram of the data and comment on the relationship between advertisement and
sales variable................................................................................................................................8
(c) Critical analysis of impact of advertising expenditure on sales and recommendation of
relevant marketing tactics............................................................................................................9
Question: 3...................................................................................................................................9
a) Determine the following for Basu Plc.....................................................................................9
b) The company’s target profit for the year is £56000, Will the estimated sales volume be
sufficient to achieve this. By how much will profit from the estimated sales volume exceed or
fall short of the target profit.......................................................................................................11
C) Prepare a break even chart for Basu Ltd. showing clearly the break even point and margin
of safety......................................................................................................................................12
d) Critically analyse the benefits and limitations of the break even model. .............................12
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Business analytics simply means to setting principles that will help to enhance decision-making
power of the company (Conboy and et.al., 2020). The different tools that are used for
conducting the process of business analytics are data analysis, statistical models and other
quantitative methods. This also involves the strategy of pricing products on the basis of cost been
charged while making products. The report has been divided into four parts. The first part will be
developing mathematical model for DC limited. Second part will determine the concept of
advertisement and how it is related with the overall cost of the company. At last the report will
be focusing on break-even point and margin of safety that are required to formulate best pricing
strategy in order to gain more revenues from the market.
MAIN BOD
PART A
(a) Development of mathematical model using the cost information of DC Ltd.
Total Cost = Fixed Cost + Variable Cost
= £110000 + £490000
= £600000
Variable Cost = Unit variable cost * Quantity produced
= £0.70 * 700000
= £490000
(b) Preparation of Income statement of DC Ltd using the appropriate information
Income Statement
Particulars Details Amount
Sales Revenue 700000 units * £3.50 per unit 2450000
Less Variable cost 700000 units * 0.70 per unit 490000
Contribution 1960000
Less Fixed cost 110000
Net Income 1850000

Note* It has been assumed that the DC Ltd has sell all its units to the customer which is
produced by the company (Bobrov and Medyankina, 2018).
(c) Graph development in spreadsheet for DC Ltd five-year projection
Variable
cost per
unit
0.74
(0.70 * 105%)
0.77
(0.74 * 105%)
0.81
(0.77 * 105%)
0.85
(0.81 * 105%)
0.89
(0.85 * 105%)
Selling
price per
unit
3.61
(3.50 * 103%)
3.71
(3.61*103%)
3.82
(3.71 * 103%)
3.94
(3.82 * 103%)
4.06
(3.94 * 103%)
No. of
units
sold.
770000
(700000 *
110%)
847000
(770000 *
110%)
931700
(847000 *
110%)
1024870
(931700 *
110%)
1127357
(1024870 *
110%)
Particulars Jan-23 Jan-24 Jan-25 Jan-26 Jan-27
Sales
Revenue
2775850
(770000 *
3.61)
3145038
(847000 *
3.71)
3563328
(931700 * 3.82)
4037251
(1024870 *
3.94)
4574205
(1127357 *
4.06)
Less
Variable
cost
565950
(770000 *
0.74)
653672
(847000 *
0.77)
754991
(931700 * 0.81)
872015
(1024870 *
0.85)
1007177
(1127357 *
0.89)
Contribution 2209900 2491366 2808337 3165236 3567028
Less Fixed
cost 110000 110000 110000 110000 110000
Net Profit 2099900 2381366 2698337 3055236 3457028

(d) Comment on costing and revenue behaviour in general, in relation to DC Ltd before and after
projection
Understanding both costing and revenue behaviour in general, in relation to DC Ltd before and
after projection are as follows:
Costing behaviour in general
The cost behaviour is an indicator which state the change in the total cost incur by the
organization in the situation when there is a change in some activity. There are three types of
cost behaviour which is being discussed in cost and managerial accounting such as variable cost,
fixed cost and semi-variable cost. The description and behaviour of these cost are as follows:37. Variable cost: This is a type of cost whose behaviour is to change in the proportion to the
change in the volume and activity. For example, Direct material, direct labour etc.38. Fixed cost: This is another type of cost whose behaviour is to remain constant even when
the level of production or activity changes. For example, selling & distribution etc.
(Obeid, and et.al., 2017.)39. Semi-variable cost: The semi-variable is also a type of cost behaviour which include both
variable and fixed components. For instance, electricity is a semi-variable cost.
Revenue behaviour in general

The revenue behaviour is an indicator which state the changes in the revenue of the company due
to various internal as well as external factors. The revenue of the company changes with the
change in the level of activity, market demand, selling price of good and increase in the sales
units of the company. The demand of the customer is also one of the factor which causes changes
in the sales revenue of the company.
Comment on cost behaviour of DC Ltd:
After particularly analysing five-year projection, it is determined that the cost behaviour of the
DC Ltd organization is increasing due to increase in their variable cost. As variable cost per unit
of organization has generally increased by 5 per cent every year. However, the fixed cost is
remains constant upcoming the next five years which particular indicate static cost behaviour of
fixed cost. So DC Ltd. Company showing the upward cost behaviours. The company is generally
required to choose strategy to control their cost.
Comment on the revenue behaviour of DC Ltd:
After study the demand of products as well as services that is offered by DC Ltd organization, it
is also identified that sales volume of organizations has increased by 10 per cent each and every
year over next 5 years. This increment is based on the actual sales volume of that particular year.
This indicates the upward trend of the revenue of DC Ltd. Organization. It is due to increase in
the sale volume particular particularly by 10 per cent, here selling price of company products is
increased by mainly 3 per cent each and every year.
Causes of change in sales and cost price are as follows:
 Shift in market supply, demand or both:
genrally the changes in the price normally come from changes or shift in the market supply,
demand or even both as well. This is major cause of change in sales price of the organization.
Because of increase in demand of company products in the market, the price shift particularly to
upward path or even vice versa. Whereas, when supply of market is increases, then price of
products or goods reduces.
 Cost and expenses:
The costs as well as expenses that leads companies to reduce size of services or products.
Increase price of goods, drop services that is generally not valued. Even the lower costs generally
leads to decrease price of goods. As if company cost of production is high then it will generally
lead to increase the product price (Sinambela, Darmawan, Gardi, and Malaihollo, 2022).

 Consumer perception:
The price is also caused due to consumer perception. As their some customers that are associate
product quality with price. Such as high price is mainly equal to high quality. The high prices
generally equal to prestige, status as well as exclusiveness.
 Government regulations:
The government intervention as well as regulations causes either by increase or decrease in the
cost and also sales price. It is due to company need or requirement to incur the extra cost for
simply complying with government rules and also regulations as well.
 Marketing method:
There are many methods of marketing which is generally used by the companies to promote their
brand. In case if DC Ltd company adopt particularly expensive marketing method that it mainly
leads to increased cost or vice versa. Therefore, it is also recommended to the company that they
must assess each and every positive and negative point of marketing methods or even tool before
apply it within the business.
Question no.2
(a) Calculation of correlation coefficient between advertising and sales of Nice Wear Ltd.
Years
Advertising
expenditure (X)
(000)
Annual Sales (Y)
(000) XY (000)
X^2
(000) Y^2 (000)
2017 2 80 160 4 6400
2018 5 100 500 25 10000
2019 4 70 280 16 4900
2020 6 120 720 36 14400
2021 3 60 180 9 3600
Σ 20 430 1840 90 39300
N= 5
Formula for calculating Correlation Coefficient-
r= r = (n * ΣXY – ΣX * ΣY) / √ [n ΣX2 – (ΣX)2] * [n * ΣY2 – (ΣY)2]
= (5 * 1840 – 20 * 430) / √ [5 * 90 – (20)2] * [5 * 39300 – (430)2]

= (9200 – 8600) / √ 50 * 11600
= 600 / √580000
= 600 / 761.577
= 0.79
Comment on the results-
The correlation coefficient is the number that lies between -1 and 1 whose purpose is to find out
direct relationship between two or more variables. In the above situation the two variables
advertisement and sales has been chosen to find direct relationship between them. The one
variable is advertisement which is independent variable while the other one is sale which is
dependent variable. According to the answer 0.79 signifies that there exist direct relationship
between two of above variables means sales is dependent upon the advertisement cost that
company makes. There exist positive relations between them. This also meant that whenever
company increases sales cost automatically company will earn more revenue. (Deshpande and
et.al., 2022)
(b) Scattered diagram of the data and comment on the relationship between advertisement and
sales variable.
The scattered diagram above has also elaborated relationship between advertisement expenditure
and the sales variable. This relation is important to determine the profitability of the business.

The answer 0.79 has been analysed that there exists positive relation between the sales and the
advertisement which also meant that increasing advertisement expenditure indicated increasing
revenue. Further, there is strong relationship that can be seen. As coefficient denotes three type
of relationship strong, moderate and less. The strong relationship further has signified the
importance of advertisement expenditure on the company and on its sales volume.
(c) Critical analysis of impact of advertising expenditure on sales and recommendation of
relevant marketing tactics.
As it has seen above advertisement expenditure has direct relationship between sales and
advertisement expenditure. This is evident from the facts that whenever company increases its
expenses on the advertisements, the sales will automatically increase. Consumer are influenced
by the marketing tactics of the company and with increasing marketing techniques. The attention
of consumer is very important to gain and advertisement plays very important role in creating
that drive in minds of people to purchase any product. There exist many marketing techniques
that company can use to promote its product In market. The marketing techniques totally depend
on and varies from the policy of the company. The most common marketing tactics is online
marketing that has gain attention in last few years. Online marketing means to promote good
using internet. The most common used online platforms are Instagram, YouTube, Facebook etc.
This all platforms act as the direct medium between the company and the user (Chukwu Kanu,
and Ezeabogu, 2019).
This is highly recommended that company should go for online marketing techniques as
this help company to grow in market. At the same time increasing users on the social media sites
provides ranges of opportunity to the company. This also includes Website of the company.
Attractive website attracts consumer at wider basis. All online platforms must be used by
company in their favors to gain more consumer and increase their sales volume. The another
thing that company can do is to increase its offline sources of marketing. The offline sources can
also bring higher profitability in the company. The online sources of marketing can be helpful for
attracting those consumers that are stick to the offline sources till now. (Ferraris and et.al.., 2019)
Question: 3
a) Determine the following for Basu Plc.
Particular Amount (in £)
sales 384000

-VC 160000
contribution 224000
-FC 140000
Profits 84000
Working notes:
1. Sales = 600 * 640
= £384000
2. Variable Cost =
Labour 200 * 640 = 128000
Materials 40 * 640 = 25600
Selling 10 * 640 = 6400
Total : 160000
3. Fixed Cost = 80000 + 60000
= 140000
4. Contribution per unit =
= 600 – 250
= 350
i) Break even point in terms of number of programs sold.
Break even point =
= Fixed Cost / contribution per unit
= 140000 / 350
= 400 units
Break even point is a point generally at which the total revenue and total cost are equal. The
organization with the low fixed costs it will have low break even point of sales. The Break-even
point will normally achieve by the Basu limited organization mainly when company sales 400
units. The 400 units is point where business will generally earn no profit but also they will
recover all their variable cost.
ii) The margin of safety as a percentage of estimated sales

Contribution margin =
contribution / sales variable
= 224000 / 384000
= 58.33
Margin of safety=
(current sales level – break even point) / current sales level *100
= (640- 400) /640 *100
= 37.5 %
The margin of safety is principle of investing under which investor only buy securities when the
market price is specifically significance that is below their intrinsic (ARM 2016). Margin of
safety is broadly referred to sales that organizations does after their break even sales. Basu
limited organizations will primarily earn profit after they achieve their break- even point that is
400 units. As company sell 640 units, the organizations will generally attain MOS after 400
units, so they will get profits after 400 units.
b) The company’s target profit for the year is £56000, Will the estimated sales volume be
sufficient to achieve this. By how much will profit from the estimated sales volume
exceed or fall short of the target profit.
Sales to earn target profit:
= ( Fixed Cost + desired profit )/contribution per unit
= 140000 + 56000 / 350
= 560 units.
Sales in value = 560* 600
= 336000
As company target profit is £56000, so for earning this profit the company have to sell 560 units
for this. As given in following income statement:
Particular Amount (in £)
sales 336000
-VC 140000
contribution 196000
-FC 140000

Profits 56000
So when the organizations sales 560 units then they will normally achieve their target profits of
£56000. As organization is already sell 640 units so, they will easily achieve their target profits
by selling 560 units only. So it will generally achievable. So the estimated sales volume is
sufficient to achieve target profit for the year that is £56000.
C) Prepare a break even chart for Basu Ltd. showing clearly the break even point and margin of
safety.
The chart for Basu Ltd. That will show the analysis of break even point and margin of safety are
as follows-
UNITS VARIABLE
COST
FIXED COST TOTAL COST REVENUES
600 150000 140000 290000 360000
550 137500 140000 277500 330000
400 100000 140000 240000 240000
350 87500 140000 227500 210000
250 62500 140000 202500 150000
200 50000 140000 190000 120000

d) Critically analyse the benefits and limitations of the break even model.
A break even model is financial calculation that mostly weight costs of organization,
new products, service mainly against unit selling price to generally identify point at which
company will break even. So the break even point is broadly point under which there is no profit
or even no loss. The break even analysis is generally tells that how many units of products must
company will sold to cover their variable as well as fixed cost of the production (Kampf,
Majerčák, and Švagr 2016). As company generally charge their cost in products. Variable cost
such as labours, selling, materials and many more, whereas the fixed cost generally covers rent,
administration etc. Here break even point is normally considered measuring of margin of the
safety. In general words break even point is mostly where organization total revenue is equal to
total expenses. As in above example the break even point is 400 units so if the company sell it
after it they will earn profits or if they sell less than they will have loss. So by this model the
company get to know that how many units they have to sales so after that they will earn profits.
Benefits of break-even analysis:
Break even analysis is useful in many condition as break even analysis helps company to raise its
profitability in the market. The higher margin of safety denotes higher performance of the
company. The benefits of break-even analysis are as follows-
Pricing :

The break even analysis generally give business a much more solid basis so it is easy to identify
price of product. By looking at the current financial position or situation as well as workout how
patient business can afford as when they come to reach their break even point.
Reduce risk:
Some organizations concepts are primarily not intended that is to be followed. Also, the break-
even analysis help business to reduce risk by normally guiding business away from investments
that are improbable to be successful (Mitrofanova and et.al., 2017).
Profitability-
The company can earn higher revenues by making sure that break even point of the company is
achieved in less span of time. The break even point simply means to decide profitability
condition of the company. higher revenues can be achieved by proper planning and by proper
implementation.
Limitations of the break even model:
 It is very important to note that this model is not predictor of the demand. As it won't tell
business what their sales are going to be, or even how many individuals will want what
they are selling.
 The break even point or model formula is simplistic. Even many business have many
products with different prices. So it won't be able particular to pick up or take that
nuance.
 Fixed costs are mostly assumed to be constant at each and every level of the activity.
Here the fixed expenses must be mentioned, tend to be change after a given degree of the
activity.
 The distribution of the fixed all over of items is problematic as well as it generally
believes that organization circumstance will always remain constant, that is not the case
(Hansen, Mowen, and Heitger, 2021).
CONCLUSION
The report above has discussed various points that comes under the concept of business
analytics. The system of business analytics simply is to determine financial position of the
company which will help company to take better decisions and earn higher revenue by enhancing
performance of the company (Mikalef and et.al., 2020). It is related with statistical models and

the quantitative methods. The report has been divided into three parts. Each three parts has been
concerned with different concepts. The first deals with mathematical tool to find profit and loss,
second deals with relation between advertisement and the sales of the company and last part
deals with break-even point and the margin of safety which will benefit company to produce
goods at lower prices aiming to earn higher revenues.

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