Business Analytic

This report covers mathematical models, correlation coefficient, break-even point, and margin of safety for business analytic. It also provides insights on how to gain competitive advantage using marketing tactics. The report includes a five-year projection plan for the business, analysis of costing and revenue behaviour, and advice on how to improve marketing strategies.

BUSINESS ANALYTIC

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
QUESTION- 1.................................................................................................................................1
a) Mathematical model for cost...................................................................................................1
b) Calculation of the profit or loss for CF ltd..............................................................................1
c) Five-year projection plan for the business...............................................................................1
d) Analysis of the costing and revenue behaviour.......................................................................1
QUESTION- 2.................................................................................................................................1
a) Calculation of correlation coefficient of advertising and sales...............................................1
b) Scatter diagram and the pattern of relationship of the two variables......................................1
c) Impact of the advertising expenditure on sales and advice regarding how the company can
gain competitive advantage by using the marketing tactics........................................................1
QUESTION- 3.................................................................................................................................1
a) Calculation of the break-even point and margin of safety for the different options in the
company.......................................................................................................................................2
b) Reasons for adopting a particular plan for the Mansleep plc..................................................5
c) Factors that needs to be considered before committing to a particular course of action.........5
d) Benefits and limitations of the break-even model...................................................................6
Application of the break-even model in marginal costing and the formulation of the business
strategy.........................................................................................................................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Business analytic is the process using which the companies shall be applying the
statistical tools on the historical data that is available in order to generate the deeper insights
regarding the same. Further this analysis regarding the various important factors and their
interrelationship shall be helpful in generating the meaningful decisions for the company. It shall
be assisting in providing the strategic direction to the company and accordingly shall be defining
the competencies in the market. The current project shall be dealing with the similar business
problems and data analysis in order to define the relationship of the different variables in the
business and which shall be contributing to the success of the organization. The mathematical
models shall be defined, the statistical techniques like the correlation shall be incorporated and
apart from that the break-even model to analyse the interrelationship among the different variants
of the business. This can further lead to the strategical planning and decision making in the entity
to support its future obligations and fulfil the required business objectives.
MAIN BODY
QUESTION- 1
a) Mathematical model for cost
Particulars Amount
Annual output 200000
Fixed cost 80000
Variable cost (per unit) 0.65
Sales price (per unit) 3
The mathematical model shall be showing the function that is being followed in the
business which shall be leading to the calculations that can be made at the various levels of the
sales that are being executed in the company. The model that is being used in the above scenario
is Sales – Variable cost – Fixed cost= Profits. The costs in the company can be divided into two
parts one is the variable cost which remains constant per unit and the fixed cost remains constant
in the company in totality. So with the help of this function any value in the equation can be
found out.
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b) Calculation of the profit or loss for CF Ltd
Particulars Amount (in £)
Sales 600000
Less: Variable cost 130000
Less: Fixed cost 80000
Profit or loss 390000
From the above table it can be indicated that the business is capable of making the profits
of up-to 390000 with the sales level of 600000. This means that by selling the 200000 units in 3
per unit selling price and the variable cost of 0.65 per unit, the company is able to attain this
level in the business.
c) Five-year projection plan for the business
2021 2022 2023 2024 2025 2026
Annual output 200000 220000 242000 266200 292820
32210
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Variable cost (per
unit) 0.65 0.69 0.73 0.77 0.82 0.87
Sales price (per
unit) 3 3.15 3.31 3.47 3.65 3.83
Particulars 2022 2023 2024 2025 2026
Sales 693000 800415 924479 1067774 1233279
Less: Variable cost 151580 176742 206081 240291 280179
Less: Fixed cost 80000 80000 80000 80000 80000
Profit or loss 461420 543673 638398 747483 873099
The future projections have been made in the company for the five years that are from
2022 to 2026 as per the given conditions of the increase and the decrease in the percentages of
revenues, costs and the profits of the company. This future projections that are made by the
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company shall be helping the business in developing the understanding that the sales and the
profitability both are showing the growing trend in the company. By optimizing the higher level
of sales the company is able to generate competencies based on market share and is able to gain
the competitive edge in the market (Krishnamoorthi and Mathew, 2018). With the progression in
each year the profit margin of the company is constantly increasing and by the year 2026 it has
almost doubled as compared to the recent profitability.
d) Analysis of the costing and revenue behaviour
The costs and the revenues of the company both show the increasing trends in the company
and are also positively related for the company as the increase in one leads to the increase in
other. The fixed component of the costs are constant but the variable costs are fluctuating and in
the future projections show the rising trend of 6%. Apart from that the output produced by the
company is also increasing with the increase in the selling price that is leading to the
maximization of the sales revenue in the company. The behaviour of the costs and revenues
show the favourable movement in the increasing direction finally leading to the increase in the
overall profitability of the company.
QUESTION- 2
a) Calculation of correlation coefficient of advertising and sales
Year Advertising expenditure Revenue from operations
2016 2 100
2017 5 90
2018 4 70
2019 6 60
2020 3 80
Correlation coefficient -0.70
The correlation coefficients are the statistical tool that is applied to find out the
relationship between the two variables and with what rate of change in one shall be impacting the
rate of change of the other. In the current situation the variables are the advertisement
expenditure and the sales generated in the company. Both the variables are interrelated as with
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the change in one it shall be leading to the change in the other. The results of the calculations
show that in WW ltd the advertising expenditure and the sales of the company are moderately
related as from 0.25 to 0.75 the relationship is classified as moderate wherein the change in one
variable will moderately affect the other (Aydiner and et.al., 2019). It can also be observed from
the above table that the relationship is adverse which is negative means the increase in one
variable shall be decreasing the other. So, overall the relationship is moderately adverse. This
can be evidently be observed that in 2016 when the advertising expense was 2 the revenues
simultaneously generated were 100. But as soon as the advertising expenditure in 2020 increased
to 3 the revenues dropped to 80 which shows the moderately adverse relationship. This means
that the increased expenditure of advertisements is not contributing positively to the sales figure
of the company rather it is posing the negative impacts on the company. This calls for the urgent
action in terms of reviewing the marketing strategy that is applied by the business as this in
increasing the costs of the business and in return is not giving any benefits to the organization.
b) Scatter diagram and the pattern of relationship of the two variables
The above figure represents the scattered diagram that is showing the relationship of the
two variables graphically. The two variables whose correlation has been identified are the
advertisement expenditure and the generation of sales in the company which can be used to see
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the effect of one on the other. It can be evaluated that the relationship is inverse showing that the
increase in the advertisement expenditure of the company shall be leading to the reduction in the
revenues of the company. But the effect of such variable on the other is with the moderate
intensity in the business. The downward slope of the sales in the company is the major concern
of the business wherein the effect shall be deepening and it shall be the red signal of the
company which shall indicate that the marketing strategies needs to be changed in the company
such that it leads to the effectiveness in the sales and that results in the profitability of the
business.
c) Impact of the advertising expenditure on sales and advice regarding how the company can
gain competitive advantage by using the marketing tactics
As per the above data that is provided to the company it can be assessed that the
advertisement expenditure that is made by the company is negatively impacting the revenues
from operations that are generated for the business over the last few years. It can also be known
that with every additional penny that was spent for the promotion and marketing of the detergent
products led to the negative impact and ultimately decreased the sales that was generated by the
company in the complete year (Kraus, Feuerriegel and Oztekin, 2020). The application of the
statistical tool showed that there is a moderately adverse correlation among the two variables of
the business. It became a serious concern for the company to find out the prominent reasons for
such an impact as this can be leading to the serious consequences for the business. It can also be
known that generally the relationship between the advertisement and the sales of the company is
positive but the same is not the case with the detergent business of the company.
The marketing advice can be provided to the management and the marketing manager of
the company to review the strategies and find out the possible factors that are impacting the
overall business prosperity in the organization. There can be several reasons for the
ineffectiveness out of which one can be the outdated product or service that is being offered by
the business that is not attracting the potential customers despite the efforts put in for the
advertisement of the brand. In such a case the company must mould the product that is offered
with the help of the required technology such that it is capable of meeting the consumer demands
and is up-to the expectations and the tastes and preferences.
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The other reason can be that the right platforms for the marketing are not being used by
the company. As in the current era digital marketing is in trend and has the benefits of covering
the vast target market and also attracts the desired customer. So it can be advised to the
marketing agent that they should apply the various digital marketing platforms like search engine
optimization, optimized company website, social media marketing and the internet ads that shall
generate the crowd for the company. This shall be ultimately leading to the increase in the brand
awareness and will be boosting the target market such that the competitive advantage can be
built in the market. These competencies will definitely result in the increase of the sales with the
increased expenditure in the advertisement of the detergent products.
QUESTION- 3
Break-even point- The break-even point is the level of sales in the business at which the total
revenues shall be equivalent to the total costs of operations and this shall be leading to a no profit
no loss zone in the business (Ashrafi and et.al., 2019). It is the minimum level of the sales that
can be executed such that the company can just survive without making the losses in the
company. At this level there is zero profitability for the company as the total revenues are equal
to the total costs in the company.
Margin of safety- It shows the difference between the intrinsic value of the stock and the market
value that is being received for it. The margin of safety shall be representing the amount of the
sales that the company is executing before it reaches the break-even point in the company.
Basically it is the difference between the actual sales level and the break-even point for the
company.
a) Calculation of the break-even point and margin of safety for the different options in the
company
Profit statement as per the original estimates of the company: -
Original
Per unit £ £
Selling price 4,40,000
Variable costs:
Labour 1,40,000
Materials 1,02,000
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Contribution 1,98,000
Less Fixed Costs:
Administration 40,000
Other 50,000 90,000
Profit 1,08,000
Calculation of the break-even point and the margin of safety: -
Break-even point (in amount) = Fixed costs / Profit volume ratio
PV ratio = Contribution / Sales revenue * 100
PV ratio = 198000 / 440000 * 100
PV ratio = 45%
Break-even point (in amount) = Fixed costs / PV ratio
= 90000 / 0.45
= 200000
Break-even point (% of sales) = Break-even point / Sales * 100
= 200000 / 440000 * 100
= 45.45%
Margin of Safety (MOS) = Actual sales – Break-even sales
= Actual sales - Break-even sales
= 440000 – 200000
Margin of safety= 240000
= Current sales – Break-even sales / Current sales * 100
= 440000 – 200000 / 440000 * 100
= 54.54%
Profit statement as per the Production manager's suggestion in the company: -
Particulars £ £
SP 4,40,000
Variable expenses
Labour 1,40,000
Materials 80,000
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Contribution 2,20,000
Less Fixed expenses
Administration 40,000
Other (50000 + 24000) 74,000 1,14,000
Profit 1,06,000
Break-even point (in amount) = Fixed costs / Profit volume ratio
PV ratio = Contribution / Sales revenue * 100
PV ratio = 220000 / 440000 * 100
PV ratio = 50%
Break-even point (in amount) = Fixed costs / PV ratio
Break-even point (in amount) = 114000 / 0.50
Break-even point (in amount) = 228000
Break-even point (% of sales) = Break-even point / Sales * 100
Break-even point (% of sales) = 228000 / 440000 * 100
Break-even point (% of sales) = 51.81%
Margin of Safety (MOS) = Actual sales – Break-even sales
Margin of safety= Actual sales - Break-even sales
Margin of safety= 440000 – 228000
Margin of safety= 212000
Margin of safety (% of sales) = Current sales – Break-even sales / Current sales * 100
Margin of safety (% of sales) = 440000 – 228000 / 440000 * 100
Margin of safety (% of sales) = 48.18%
Profit statement as per the Marketing manager's suggestion in the company: -
Particulars £ £
Selling price (increase by 20%) 5,28,000
Variable costs:
Labour 1,68000
Materials 1,22400 290400
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Contribution 237600
Less Fixed Costs:
Administration 40,000
Other 50,000
Advertising campaign 24,000 1,14,000
Profit 123600
Break-even point (in amount) = Fixed costs / Profit volume ratio
PV ratio = Contribution / Sales revenue * 100
PV ratio = 237600 / 528000 * 100
PV ratio = 45%
Break-even point (in amount) = Fixed costs / PV ratio
Break-even point (in amount) = 114000 / 0.45
Break-even point (in amount) = 253333
Break-even point (% of sales) = Break-even point / Sales * 100
Break-even point (% of sales) = 253333 / 528000 * 100
Break-even point (% of sales) = 48%
Margin of Safety (MOS) = Actual sales – Break-even sales
Margin of safety= Actual sales - Break-even sales
Margin of safety= 528000 – 253333
Margin of safety= 274667
Margin of safety (% of sales) = Current sales – Break-even sales / Current sales * 100
Margin of safety (% of sales) = 528000 – 253333 / 440000 * 100
Margin of safety (% of sales) = 52%
b) Reasons for adopting a particular plan for the Mansleep plc.
Mansleep plc shall be adopting the plan which shall be the most profitable for the
business rendering the maximum profits. This is possible in the case where the break-even point
is the lowest which means it shall be increasing the scope of profitability. In accordance with this
it can be assessed that the most suitable option is the original estimates that were earlier
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determined by the company because they have the lowest BEP at 45.45%. Apart from that in
case of the margin of safety the highest level shall be the most desired one wherein the chances
of profitability are higher. The highest difference between the actual and the break-even sales is
the most profitable level. According to this also the original estimates is the best for the company
as this has the maximum profits at 54.54%.
c) Factors that needs to be considered before committing to a particular course of action
Apart from the cost and the profitability analysis of a particular product there are other
factors in the business that needs to be considered before the adoption of a particular plan and
committing to a course of action. Some of such important factors are: - Competition- Apart from the profitability in the operations post the analysis of the cost
and sales in the company, there are other factors that are equivalently important for the
business. Amongst which competition that is persisting in the market is one of the major
factors that shall be determining the market share that can be optimized by the company.
It shall be impacting the competencies in the business and accordingly the reputation of
the brand in the market. Technology- Another major factor that shall be contributing to the successful
implementation in the company is the technological aspect in the form of advancements
and the modifications of the processes and the equipment’s that are being used in the
company (Appelbaum and et.al., 2017). It is necessary before the execution of the plan
that the required technology is there with the business. Manpower- In order to successfully execute the operations in the business the company
needs to have the availability of the skilled and talented manpower resources who have
the necessary qualification. Before the implementation of the course of action the
business has to recruit the right employees at the right position. Availability of the funds- This is the factor that is the most crucial for the application in
the business as the finance is the life blood of the business. It is very essential to have the
required funds in the company so that the operations can be executed and there is the
smooth flow of the working capital cycle for the company (Mikalef and et.al., 2020).
 Governmental regulations- Apart from all the other factors it is also important for the
business to ascertain that the operations are within the legal parameters and none of them
are being violated by the company so as to attract the interference of the government and
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is liable for the other punishments like the penalties, charges, fees etc. So the operations
of the company must be viably determined such that all the lawful legislations are being
abided.
d) Benefits and limitations of the break-even model
Benefits
There are certain advantages of applying the break-even model in the company which
are-
 One of the most significant benefits are that such a technique shall be helping in the
controlling of the costs in the company (Break-Even Analysis, 2021). Be it the fixed costs
or the variable costs in the company they can be minimized by analysing the relative
profitability for the product in the market.
 It shall also be assisting in fixing the prices of the products by adding the percentage of
profit margin in the determined cost of the product.
 The process of decision-making is simplified with the help of break-even analysis as it
shall be assisting in the make or buy decisions or the budgetary decisions in the form of
operational capacity in the future through the analysis of the optimum level of sales for
the company where the profitability can be maximized.
 The another benefit is that it shall be ascertaining the calculations of the sales and
profitability at different levels of the operational capacity in the business and further
understanding the relationship between the sales, costs and the profits and the effects of
changes in each of the following.
 It can help in the financial planning and the various sources for the arrangement of the
funds in the business which can prove to be cost efficient for the company.
Limitations
There are certain limitations pertaining to the break-even model that is being executed by
the company: -
 One of the biggest limitations is that it is just the quantitative analysis of the cost and the
output that are being generated by the company, which means that it completely ignores
the qualitative factors like the efficiency of the management, technology, manpower and
the market conditions that are prevailing.
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 It involves the various assumption that the selling price, fixed costs and the profit margin
of the company shall be constant which is very unrealistic in today’s market conditions.
Also, the calculations does not focus on the concept of the economies of scale (Vidgen,
Shaw and Grant, 2017).
 If the company is dealing in the multiple products in that case the preparation of the
various break-even charts and graphs shall be a tedious job and that is the reason it is
considered to be less appropriate for the company.
 The assumption that the productivity in the business shall also remain constant and that is
the reason it avoids the competition factor in the business.
 The model is based on the arbitrary calculations and valuations in the business and it
shall not be considering the exact market conditions of the business.
Application of the break-even model in marginal costing and the formulation of the business
strategy
The break-even model can be applicable in the marginal costing technique of the
company as both of the techniques involve the division of cost in terms of the variable and the
fixed cost. In which the variable costs are charged to the operations of the company and fixed
expenses will be charged against the profitability. Since the function is similar that is the reason
there is the mixed applicability.
Also it shall be providing the assistance in the formulation of the company strategy
through the determination of the relationship of the cost and the profitability in the business.
With the help of the break-even point in the company the company can make the budgetary
decisions pertaining to the future operations and the operational capacity that shall be adopted.
CONCLUSION
From the above project it can be concluded that the different variables in the business are
interrelated and the change in one effects the other. In order to find such relationship, the
company has to apply the various statistical tools to the historic data and then accordingly derive
on the conclusions. This analysis shall be providing the deeper insights into the business and
further shall be contributing to the better understanding of the variables and will lead to the
formulation of the various strategies and assist in the process of the business decision-making.
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REFERENCES
Books and Journals
Vidgen, R., Shaw, S. and Grant, D. B., 2017. Management challenges in creating value from
business analytics. European Journal of Operational Research. 261(2). pp.626-639.
Appelbaum, D. and et.al., 2017. Impact of business analytics and enterprise systems on
managerial accounting. International Journal of Accounting Information Systems. 25. pp.29-44.
Mikalef, P. and et.al., 2020. Big data and business analytics: A research agenda for realizing
business value. Elsevier.
Ashrafi, A. and et.al., 2019. The role of business analytics capabilities in bolstering firms’ agility
and performance. International Journal of Information Management. 47. pp.1-15.
Kraus, M., Feuerriegel, S. and Oztekin, A., 2020. Deep learning in business analytics and
operations research: Models, applications and managerial implications. European Journal of
Operational Research. 281(3). pp.628-641.
Aydiner, A. S. and et.al., 2019. Business analytics and firm performance: The mediating role of
business process performance. Journal of business research. 96. pp.228-237.
Krishnamoorthi, S. and Mathew, S. K., 2018. Business analytics and business value: A
comparative case study. Information & Management. 55(5). pp.643-666.
Online
Break-Even Analysis. 2021. [Online] Available through: <https://theinvestorsbook.com/break-
even-analysis.html>
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