Business Analytics: Costing, Revenue Behaviour, Correlation Coefficient, Breakeven Point and Margin of Safety

Business Analytic

Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Question 1........................................................................................................................................3
a) Developing a mathematical model using the given cost information................................3
b) Calculating the profit or loss using the given information.................................................4
c) Five year projection from January 2023 considering given adjustments...........................4
d) Analysing the cost and revenue behaviour of KB Ltd, before and after projections.........5
Question 2........................................................................................................................................6
a) Calculation of correlation coefficient and analysis of the results......................................6
b) Scatter diagram of data and analysing the pattern of relationship among two given variables
................................................................................................................................................7
c) Analysis of impact of advertising expenditure on sales, and other relevant marketing tactics
................................................................................................................................................8
Question 3........................................................................................................................................9
a) Calculation of breakeven point and margin of safety.........................................................9
b) Comparing the target profit with the actual one.................................................................9
c) Breakeven chart................................................................................................................10
d) Analysing the benefits and limitations of breakeven model............................................11
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Business analytics can be defined as a collection of restraints and methods for elucidating
business related problems utilising data analysis, quantitative techniques and other statistical
models. This involves repetitive and systematic examination of a company’s data focusing on
statistical analysis to drive decision making. Data-driven businesses are actively seeking ways to
treat their data as an asset of business and turning it in a competitive edge. The success of
business analytics rely upon the quality of data and skilled analysts who have an understanding
of technology and business, and a commitment to utilising data to generate understandings that
drive business decisions (Ariyarathna. and Peter, 2018). The report includes the brief analysis
and answers of the first three case studies in the given assessment. The questions includes the
analysis of costing and revenues behaviour, calculating profit or loss, correlation coefficient,
breakeven point and margin of safety, the costing projections, plotting scatter diagram, analysis
of the impact that comes due to expenses incurred on sales , the benefits and limitations of
breakeven model and much more.
MAIN BODY
Question 1
a) Development of a mathematical model by using the information regarding cost that has been
given
There is a mathematical model known as profit model which is a linear deterministic
algebraic model utilised implicitly by most of the cost accountants. It gives a framework for
modelling elements of cost like material, multi products, depreciation, etc. starting with profit
equals to sales subtracted by costs. It assist with a mutable theoretical foundation for spreadsheet
modellers. It allows modellers to run deterministic replications or “what if” type modelling to see
the effect of changes in price or quantity, or cost on profitability (Arora, 2018).
π = pq – (Fn + wq)
Where π stands for profit, p for sales price, Fn stands for fixed cost, w is variable per unit sold
and q stands for quantity sold.

Profit = Sales – Total cost
Profit = Sales – (Variable cost + Fixed cost)
In the given case study of Matthew, the budgeted annual output is 200000 units, the fixed cost is
£100000, the variable cost per unit is £0.90, and the sales price per unit is £3. Hence, substituting
all these values in the above model gives the following:
π = (£3*200000) – (£100000 + £0.90*200000) = £320000
b) Calculating the profit or loss using the given information
per unit Amount
Budgeted annual output (in units) 200000
Sales price 3 600000
Fixed cost 100000
Variable cost 0.9 180000
Profit 320000
The profit of KB Ltd. is £320000. It is calculated by subtracting fixed cost and variable cost from
sales (Byfield, 2019).
c) Five year projection from January 2023 considering given adjustments
Jan-23 Jan-24 Jan-25 Jan-26 Jan-27
Budgeted
annual output
(in units) 220000 242000 266200 292820 322102
Sales price 693000 800415 924479.3 1067774 1233279
Fixed cost 100000 100000 100000 100000 100000
Variable cost 209880 244720.1 285343.6 332710.7 387940.6
Profit 383120 455694.9 539135.7 635063 745337.9