Business Analytics: Mathematical Model, Analysis, and Break-even Analysis

This study explores the concept of business analytics and its application in strategic decision-making. It covers mathematical models, analysis of sales and costs, and break-even analysis. The benefits and limitations of the break-even model are critically analyzed. Suitable for students studying business analytics.

Business Analytic

Contents
INTRODUCTION...........................................................................................................................3
Question 1........................................................................................................................................3
Mathematical Model:...................................................................................................................3
Calculate the profit or loss for BF Ltd:........................................................................................3
Draw a graph with a spreadsheet:................................................................................................4
Question 2........................................................................................................................................6
Correlation coefficient of advertising/sales and comment:..........................................................6
Analysis:.......................................................................................................................................7
Question 3........................................................................................................................................7
Determine:....................................................................................................................................7
When company’s target profit for the year is £56000:................................................................8
Break even chart:.........................................................................................................................8
Critically analyse the benefits and limitations of the breakeven model:.....................................9
CONCLUSION..............................................................................................................................10
References......................................................................................................................................11

INTRODUCTION
Business Analytics relates to a procedure in which organisations use computational tools
and technology to analyse historical/past data in attempt to obtain new insights and enhance
strategic decision-making. Business Analytics is an iterative, methodological study of data of the
enterprise, with a focus on mathematical analysis. Company intelligence is used by businesses
that employ data-driven decision-makings (Evans, 2017). Data-driven businesses regard their
data as corporate commodity and aggressively pursue opportunities to transform it
into competitive advantage. Effective business analytics relies on data accuracy, on trained
analysts who understand technology and business, as well as on an organisational willingness to
use data to generate insights which inform strategic decisions. The study consists of different
aspects of business analytics through different practical tasks along with critical analysis of
results.
Question 1
Mathematical Model:
Sales Variable costs Profit
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Mathematical Model
Calculate the profit or loss for BF Ltd:
Budgeted
annual
120000
units

output
Fixed cost 40000
Variable
costs
0.5
Sales price 1
Units Rate Amounts
Sales 120000 1 120000
Less: Variable
costs
120000 0.5 60000
Contribution [Sales less variable
costs}
60000
Less: Fixed costs 40000
Profit 20000
Draw a graph with a spreadsheet:
Units Rate Year
2021
Year
2022
Year
2023
Year
2024
Year
2025
Year
2026
Sales 12000
0
1 12000
0
12600
0
13230
0
13891
5
145860.
8
153153.
8
Less: Variable
costs
12000
0
0.5 60000 66000 72600 79860 87846 96630.6
Contribution 60000 60000 59700 59055 58014.7
5
56523.1
9
Less: Fixed costs 40000 40000 40000 40000 40000 40000
Profit 20000 20000 19700 19055 18014.7
5
16523.1
9

2021 2022 2023 2024 2025 2026
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
Sales
2021 2022 2023 2024 2025 2026
0
20000
40000
60000
80000
100000
120000
Variable costs

2021 2022 2023 2024 2025 2026
0
5000
10000
15000
20000
25000
Profit
Analysis: As shown in above graph there is increase in sales of 5% while increase in variable
costs is 10%. There is larger increment in costs as compare to increasement in variable costs due
to which overall profit and contribution figures. Notable aspect here is that fixed costs would not
be changed which lead to greater decrement in net profit figures. Analysis shows that there is
simultaneous increasing relation between sales and total costs while inverse relation between
sales and profits (Acito and Khatri, 2014).
Question 2
Correlation coefficient of advertising/sales and comment:
Year Advertising
expenditure
Sales
revenue
xy x2 y2
2021 2 60 120 4 3600
2022 5 100 500 25 10000
2023 4 70 280 16 4900
2024 6 90 540 36 8100
2025 3 80 240 9 6400
20 400 1680 90 33000
r = [n(Σxy) - (Σx)(Σy)]/√[nΣx2 - (Σx)2][nΣy2 - (Σy)2]
r = (5 * 1680 - 20 * 400)/√(5*90 - 20*20) *
(5*33000 - 400*400)
r = 400 /√250000
r = 400/500
r = 0.8

Analysis: A positive result i.e. 0.8 of correlation coefficient depicts that increase in first variable
i.e. advertisement expenses corresponds to increase in second variable i.e. sales, consequently
implying direct relationship among the variables.
Plot a scatter diagram:
2021 2022 2023 2024 2025
0
20
40
60
80
100
120
2 5 4 6 3
60
100
70
90
80
Chart Title
Advertising expenditure Sales revenue
2020 2021 2022 2023 2024 2025 2026
0
20
40
60
80
100
120
60
100
70
90
80
2 5 4 6 3
Chart Title
Advertising expenditure
Sales revenue
Analysis:
Above presented chart shows that there are highest sales i.e., 100000 in year 2022 while
in this year advertisement expense is 5000. Whereas there is highest advertisement expense is
6000 in year 2024 and in this year, sales are 90000. There is lowest advertisement expense of

2000 in year 2021 while also lowest sales is in this year i.e. 60000. It has been analyzed that
when advertisement expense is lower than sales will also goes down. Thus here it is advisable to
marketing manager should control advertisement expense and focus on replacing or improving
exiting marketing strategy to boost sales. Marketing manager should adopt other effective
marketing strategy to gain competitive advantages because new effective marketing strategy will
minimize overall advertising expense and enhance sales level.
Question 3
Determine:
i. Breakeven point in terms of number of software programs sold:
Fixed costs / Contribution per unit = (80000 + 60000)/ 640 218.75
ii. Margin of safety as a percentage of estimated sales:
= (Actual sales units - Break even sales units) / Actual sales units * 100
(640 - 218.75) / 640 *100
65.82031
When company’s target profit for the year is £56000:
i.
At the
estimated sale,
profit will be
84000 while
targeted profit
is 56000 this
shows that
estimated sales will be sufficient to attain such target.
ii.
Target Profit 56000
Fixed Costs
Units Rate
Sales 640 600 384000
Less: Variable costs
Labor 640 200 128000
Materials 640 40 25600
Variable overheads 640 10 6400
Contribution 224000
Less: Fixed costs
Administration 80000
Selling and distribution 60000
Profit 84000

Administration 80000
Selling and
distribution
60000
196000
Variable costs
Labor 128000
Materials 25600
Variable overheads 6400
Expected sales 356000
Break even chart:
400 450 500 550 600 640
$(200,000.00)
$(100,000.00)
$-
$100,000.00
$200,000.00
$300,000.00
$400,000.00
$500,000.00
Total costs Income Net profit
Critically analyse the benefits and limitations of the breakeven model:
Break-even assessment is a really crucial and valuable method for financial reporting and
monitoring. The below are the advantages of break-even analysis:

 This study helps to allow a decision between two options to take and to purchase.
If variable cost is smaller than the amount to be charged/paid to outside source, it could
be cheaper to produce than to purchase.
 The C-V-P study aimed to schedule the output of goods for the highest contribution to
the profit sum as well as fixed costs.
 As cost management system, the C-V-P evaluation may be employed to spot insidious
upward changes in costs which would otherwise go overlooked (Wixom, Yen and Relich,
2013).
 Break-even research offers an interpretation of the actions of income in regard to
production. This awareness is essential in the preparation of a business 's financial
framework.
 When a rational base with subjective observation is accessible, the break-even study
provided financial management also with details that is valuable in decision-making
practices.
Limitations: The following drawbacks of break-even evaluation must be taken into consideration
when using this method:
 Some costs including their elements do not come into neatly compartmentalized fixed or
variables cost categories since they have the features of all kinds.
 If a corporation offers a variety of items, the accounting analyst must plan and
review number of profit-charts covering consolidated divisions of independent
operations.
 A break-even map reflects a short-term, stagnant relationship between costs and
production, and quite easily becomes redundant.
 Relationships shown in break-even map do not benefit both stages of activities. Costs
strive to be greater than seen on static break-even map while plant's output is close to
the 100percent of total of its efficiency (Duan and Xiong, 2015).
 Frequent fluctuations in the sale price of the goods have an effect on the efficiency
of break-even study.
 The costs of securing funds to grow is overlooked in break-even graph.

CONCLUSION
From above study this has been analyzed that while selecting business analytics tool,
companies should recognize the sources from which they can draw data, the quality of data they
will analyse and the accessibility of data. A great business analytics platform would be simple
enough for popular business customer, but that also allows more sophisticated customers to take
benefits of its capabilities.
References
Books and Journals:
Evans, J.R., 2017. Business analytics (p. 656). London: Pearson.
Acito, F. and Khatri, V., 2014. Business analytics: Why now and what next?.
Wixom, B.H., Yen, B. and Relich, M., 2013. Maximizing value from business analytics. MIS
Quarterly Executive, 12(2).
Duan, L. and Xiong, Y., 2015. Big data analytics and business analytics. Journal of Management
Analytics, 2(1), pp.1-21.