Business Analytics: Costing and Revenue Behaviour Analysis, Mathematical Modelling, Correlation Coefficient, Break Even Analysis

This report covers topics such as costing and revenue behaviour analysis, mathematical modelling, correlation coefficient, and break even analysis in the context of business analytics. It includes a discussion of advertising expenditure and sales, as well as other marketing strategies.

Business Analytic

Table of Contents
INTRODUCTION...........................................................................................................................3
Question 1........................................................................................................................................3
Develop a mathematical tool......................................................................................................3
(b) Find out the profit of the organisation...................................................................................4
d) Analyse the cost behaviour.....................................................................................................5
Question 2........................................................................................................................................6
(a) Calculate the correlation coefficient of the advertisement/sales. Provide interpretation for
the following...............................................................................................................................6
b) Plot a scatter diagram of the data provided and patter of the relationship between the two
variable........................................................................................................................................7
(c) Evaluate the impact of advertising expenditure on sales. And other marketing strategies.. .8
Question 3........................................................................................................................................9
(a) Determine the breakeven point of the number unit sold and margin of safety......................9
(b) Break even chart..................................................................................................................11
(c) Calculate the sales volume in order to achieve the desired profit 560000..........................11
(d)Advantage and disadvantage of breakeven analysis............................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................15

INTRODUCTION
Business analytics is a practice which emphasizes on taking a business data of the past and
performing analysis on it. The analysis provides trends, patterns and causes that happen to occur.
This helps the organisation to make a data driven choices which is really helpful for making
dynamic decisions (Awan and et al., 2021). In this report three question need to be attempted, the
question involves costing and revenue behaviour analysis, understanding mathematical model
and budget making. Statistical tool is used for understanding the relationship between
advertisement expenditure and sales. Break even analysis and calculation of margin of safety and
its usage in an organisation. Question nuymber1, 2 and 3rd is attempted.
Question 1
Develop a mathematical tool
Total cost
118000
18000
Fixed Cost
100,000
Variable cost
18000
Unit variable
cost
0.90
Quantity
produced
200000

A mathematical model is an effective tool used by the cost accounted to figure out the
profit gained by the company. It provides the data for costing components like variable, fixed
and overhead cost used in the production of product. It is practised on spreadsheet for performing
other functions that is used for forecasting, situation analysis such as “what if” this used for
understanding the effect of cost on sales and other elements. This type of modelling is really
important for determining the cost effect changes when deviations ion the other elements are
taken (Balakumar and Mohan, 2019).
π = pq – (Fn + wq)
here, in the above equation, p is the selling price, f is the fixed cost, w represents the variable per
unit sold, q is quantity sold.
Profit= Sales – total cost
Budgeted annual output 2,00,000
Fixed cost amount 1,00,000
Variable cost 0.9
Sales price 3
(b) Find out the profit of the organisation
In marginal costing profit is calculated by deducting the variable and fixed cost from the sales
price per unit. It helps in optimum utilisation of resources through economies of scale. The
marginal revue should match the marginal revenue (Cao and et al., 2021).
Calculation of the profit
Particular Total unit Per unit price Amount
Budgeted annual output 200000 3 600000
variable cost 200000 0.9 180000
Contribution 420000
Fixed cost 1,00,000
Profit 3,20,000
(c)
Five year projection
Particular Rate of increase 2023 2024 2025 2026 2027
Budgeted annual output 10% 220000 242000 266200 292820 322102
Sales price(Per unit) 5% 3.15 3.3075 3.472875 3.64651875 3.8288447
variable cost (Per unit) 10% 0.99 1.089 1.1979 1.31769 1.449459
Contribution(Per unit) 2.16 2.2185 2.274975 2.32882875 2.3793857

Fixed cost 1,00,000 1,00,000 1,00,000 1,00,000 1,00,000
Profit 375200 436877 505598.345 581927.6346 666404.89
d) Analyse the cost behaviour
Cost behaviour analysis is a practice in which study is done to understand the changes in
operational activity put on the cost. The cost is the expense incurred directly or indirectly in
manufacturing and selling of the product. cost can be divide in to different sections Cost
behaviour analysis is the study of elements that attribute to the expense such as direct material,
labour, and overhead charges. The study helps in understanding how the operating cost deviates
in reference to the change in operational level of activity. Cost behaviour analysis is carried out
through mathematical model. These mathematical model helps in understanding the cost and
production relationship (Cuim and et al.,2021). Level of activity is the scale which defines the
production level quantity. Assumption related to cost functions are stated below:
Cost function can be represented by linear function y= mx+b and can be sued for plotting in the
graph
For finding out the cost function model analyst takes into account following assumptions
 change in the variable explains the cost change in the overall production
 Cost behaviour can be represented by the linear equation with a specified range.
In cost behaviour analysis the variable cost is the one which increases and decreases with
respects to the production unit. If the level of activity I increased the variable will change, as the
production will require more elements. Direct material cost is increased as the production is to
expanded that the manufacturing unit will need extra raw material. Same as the case with labour,

worker hours will increase as the manufacturing work will increase. The selling cost which
comes under variable is also increased with per unit increase (Forsyth and et al., 2020).
However, fixed cost is the standard charges that is applicable on the production irrespective of
the manufactured unit. Rent and equipment usage remains same whether the items produced is
more or less. Overhead is referred to the cost which is directly attributable to the operational
expenses.
This analysis is important for mangers to understand the nature of cost so that annual budgets
could be prepared. This determines the capacity of production and the resources that will be
required if the production need to be improved. It also used for cost profit analysis, lets the
internal team know about the profit that can be gained out of the produced. It is used for
comparing the profitability between two type of production item, in deciding which one is more
beneficial for the organisation (Hafizan, and et al., 2020). This also an effective tool for
controlling cost and expenses incurred during the manufacturing process. Quality of the item
produced can also be maintained with tis analysis by using the verified ratio of material, labour
needed for production.
Question 2
(a) Calculate the correlation coefficient of the advertisement/sales. Provide interpretation for the
following.
year Advertising expenditure (x) Sales revenue (y) xy x^2 y^2
2017 2 100 200 4 10000
2018 5 70 350 25 4900
2019 4 90 360 16 8100
2020 6 60 360 36 3600
2021 3 80 240 9 6400
20 400 1510 90 33000
Regression Statistics
Multiple R 0.9
R Square 0.81
Adjusted R Square 0.746666667
Standard Error 7.958224258

Observations 5
= 5(1510)-20 * 400/( 5 *90 – 400)(5*33000-16000)
=0.9
In this case it can said that there is positive realtion between the advertisemnt expense and sales.
If the expenditure on marketing is increased the sales will also increase with 0.9%. in this the
advertisment is X which is the independent varaible, the sales is considered as the dependent
varaible which is effected by the exepenses on advertisment. This is a positive correltaion that
means the changes in the both elements are directly proportionally (Jubaedah, 2021).
Coefficient correlation is the statistical tool used for determining the relationship between two
variables. It is a statistical measure used for defining the dependency of the variable on the other.
This basically provide a level which identifies that one variable change in respect to the changes
in the other variable. It is used for prediction of variable’s behaviour in the upcoming event.
It is a statistical measure that provides the strength of movement between the two variables. If
the value lies between 0 to 1 it is considered as positive relation that means if one moves the
other also move in the amount of value. A value of 0 denotes a zero relationship where the
variable is unrelated and not impacted by change in the other. Any coefficient between -1 to 0 is
negative value implies an indirect relationship. If one variable is increasing, then the other
decreases (Lin and et al.,2018).
b) Plot a scatter diagram of the data provided and patter of the relationship between the two
variable.
Scatter diagram is the visual representation of the information available. In this graphs are used
for representation of the x, y variable. A relationship between two elements can be easily
understood by looking to the graphs. In scatter diagram graph if the points of the variable are
closed to each other then it implies that they are closely related. If they are widely spread, then
its implied that they are not in strong relationship and not effected by each other. It provides the
information about the correlations, linearity and non-linearity. In the current case of was-well
limited the scatter diagram represents that the expenditure and revenue is not going in the same
direction, though in general the two variable shows a strong relationship. But here they are not in

the same way. This may be due to ineffective use of the technique; the marketing manager need
to change the techniques that is being currently used (Lisson, and et al.,2020).
(c) Evaluate the impact of advertising expenditure on sales. And other marketing strategies.
Advertisement expenditure is the expenses that is included in marketing expenses, this is a tool
used communicating the brand, product and idea to the potential audience. It can be carried out
through new paper, magazine, television and internet. Such expenses are required to promote the
product in the country. This is mandatory tool when it is new product or new market. the
marketing strategy often makes the revenue increase. The objective of advertisement expense is
to increase the sales revenue. In today’s business environment promotions and marketing is
really important, and for making it effective business environment analysis is most essential
(Maheshwari, Gautam, and Jaggi, 2021). Advertisement should be in a such a way that it attracts
the potential customer. It should reflect the values of the organisation and relevant to the
organisational objective.
An attractive advertisement is capable of popularity in the market and providing competitive
advantage. It provides the platform where how the goods and services are better from the other
present in the market can be communicated in effective manner. It is stated by studied that an
advertisement leaves a remarkable thought ibn the audience market. hence it should be carefully
made (Zulkarnain, Munthe and Fatahurrazak, 2020).

In the case of Wash well limited, advertisement has not played a very effective role, which
is negative result. There is need to change in the tactics that are currently used. While
making an advertisement there are various things that should be kept in mind. That it should
not hurt the sentiments of the public, it should be reliable, it should not state anything which
is not present in the product in reality. The platform where the product is promoted must be
chosen effectively that it reaches maximum individual. It should be legal and must be
relevant.
Other relevant marketing tactics
Social media marketing: It is type of promotional tool which is linked to internet, social sites like
Instagram, Facebook, telegram and other. The organisation was-well limited can start an
Instagram page where it can put its item and effective usage of the product. There is an option
available as promoting product with the help of influencers. Influencer are the public figure
popular among the public (Manko, 2021). Cause marketing- It is type of marketing which relates
the goods and services to any event which is going on, or any social issues which is prevailing in
the market. This helps in connecting the customer emotionally which helps in gaining popularity
of the item and generate revenue. Manufactures of detergents can promote their product as a
germ protection, as during pandemic coronavirus was used as the promotion. Detergent which
protects from coronavirus, kills the virus was used.
Discounts and offers- This is very effective technique that is used by the organisation to
attract new customer. Giving a attractive discount to people will raise the raise sales of the
organisation.
Question 3
(a) Determine the breakeven point of the number unit sold and margin of safety.
Particular £ Units Amount
Selling Price 600 640 384000
Variable cost 160000
labour 200
material 40
Selling 10

Contribution 350 640 224000
Fixed cost 140000 140000
Profit 84000
Breakeven is the point which defines where the firm is neither at profit nor at loss, at this scale
the firm covers the cost incurred. At this [point the revenue is equal to the cost of production. A
business manager uses break point as internal tool for fixing cost and other product related
components (Oberdorf, Stein, and Flath, 2021).
. A low breakeven is better than a higher one, a business entity can bring down its break even by
minimising its costs and increasing the price. This concept does not consider market demand.
The formula takes in to account all the cost related to the production in consideration while
calculating the breakeven point. There are two type of cost generally incurred fixed and variable.
The cost which changes with respect to change in scale of production is known as variable cost.
For example, material, labour, selling overhead, which are variable. While, fixed does not
change with any changes in the item scale. Fixed cost can be said as rent payment, equipment,
land and building etc. the use of the concept is lot in number, it is used in future projection,
estimation of cost, making business decision and other (Paczkowski, 2021).
In the current case of Basu Plc the breakeven point is 400 programme and break even in sales is
256000.
Breakeven point Fixed cost/contribution per unit
Per unit 400
Break even Sales 256000
Margin of safety- It is concept which find out the difference between the total sales and the
breakeven point. A higher point describes better position at it won’t be affected by minimum
variation in the sales. The concept may encourage the business entity to reduce the cost, and
control expenses.
In the current case of BASU ltd
Sales = 640
Break even pint = 400

Margin of safety = Total sales – Breakeven point
= 640-400
=240 unit
(b) Break even chart
BUDGETED
OUTPUT
FIXED COST VARAIBLE
COST
TOTAL COST TOTAL
REVENUE
350 140000 87500 227500 210000
400 140000 10000 240000 240000
450 140000 112500 252500 270000
500 140000 125000 265000 300000
550 140000 137500 277500 330000
(c) Calculate the sales volume in order to achieve the desired profit 560000.
Following formula can be used (Sinha and Singh, 2020)
Sales volume= Desired cost+ fixed cost/p/v ratio
p/v ratio = Contribution/sale
= 350/640
=58.33%

= 56000+140000/58.33%
=296000
Hence, from the above calculation it can be said if the company want achieve a target profit of
56000 it has to earn a sales revenue of 56000
(d)Advantage and disadvantage of breakeven analysis
The breakeven point analysis provides the equalitarian point where the firm has no profit no loss,
this helps the business entity that need to be sold to get desired profit. Hence, it is important tool
for business decision making (Ubal, 2020).
 The calculation of the point is helpful in finding out the applicability of the fixed and
variable cost on product.
 It is measurable technique to decide on the targets in order to fulfil the organisations;
goal.
 It is applicable in predicting the future goals of company and set policies according to it.
 It is used in making the investment decisions also about the company's viable loss and
profit can be made out of the project.
 It is helpful in measuring the profit that can be ascertained from selling a product, if the
cost is more and it cannot be recovered the production of such items can discontinued.
This is very important aspect of breakeven analysis. \
 The concept is actually helpful in determining cost efficiency and profitability of the
business firm (Wang, an et al.,2019).
 Identification of the variable cost component can be measured from this analysis and
fixed cost expenses in manufacturing is measured too.
Disadvantage of breakeven tool
such analysis is very useful when making business decision but it has its own setbacks:
 The concept does not deliver an accurate result as it is based on an assumption that
revenue and cost will not change with output.
 Break even analysis sometimes lead to setting high standards which are difficult to be
achieved (Watson, Hu and Zhou, 2018).

 The assumption that factory size, process and methods of production process remains
constant is not proper. In a dynamic business environment component keeps on changing.
 The allocation of the variable and fixed cost is very difficult, if the division of cost is
improper the outcome becomes misleading.
 Preparing a break even chart is very time consuming and requires resources.
 The business firm which is in manufacturing of two or more product line cannot use this
concept.
 The sales price is assumed to be constant at every point of time which is not applicable in
real world. This is a significant drawback, because the cost of production as the
purchasing cost will be minimised with increase in production (Yang and et al.,2022).
 It does not consider the inventory left and stock in the beginning, production and selling
the same amount of unit is not considerable.
 There are so many expenses which are neither fully fixed nor variable, this makes the
calculation of the breakeven complex.
CONCLUSION
From the above report it can be concluded that a mathematical model is used for figuring
out the variable, fixed expense incurred on a product. it is used by analyst to perform the
profit analysis in the organisation. Budgeting is method by which future projection related to
the sales, profit and cost incurred on a product. this helps in finalising the policies that helps
in achieving the organisational goals. Cost and revenue general behaviour is such that if the
revenue increase the cost is also increased. That means the two of the variable are directly
proportional. Coefficient correlation is the statistical measure that is used for finding out the
relationship between the two variable. This is used for measuring the impact of in variable
on the other. Advertisements expenses are incurred to promote the sales of the company. It
should be effectively used and company can get a lot of advantage from this tool. There is
various other tool which can be used by the marketing manager for better communication.
Breakeven point is where the company is neither at loss nor at profit, at this scale the
company has achieved it is cost it incurred.

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