Business Finance: Contribution, Break Even Points, Margin of Safety, Importance of Cost, Absorption and Marginal Costing, Role of Budgets

Business Finance

Contents
INTRODUCTION.......................................................................................................................................3
PART A.......................................................................................................................................................3
Contribution per unit...............................................................................................................................3
Break even points in units and sales........................................................................................................3
Margin of safety as a percentage of budgeted sales.................................................................................4
Breakeven units if Maxwell expects profit of £100,000 during the current year.....................................4
Importance of classifying cost.................................................................................................................4
Absorption and marginal costing.............................................................................................................5
PART B.......................................................................................................................................................7
Role of budgets in controlling the operation of business.........................................................................7
Calculation of variances and prepare budget...........................................................................................8
CONCLUSION.........................................................................................................................................10
REFERENCES..........................................................................................................................................11

INTRODUCTION
Finance refers to the administration of money and the acquisition of assets. Finance is a
board concept that refers to operations involving finance, equity, finance, financial markets,
assets, and acquisitions. The term "business financing" refers to the use of funds and credit in a
company (Hong, Karolyi and Scheinkman, 2020). This also aids in the management of financial
assets in order to increase the profitability of the company when analyzing financial reports
(profit and loss accounts, balance sheets and cash flow statements). It is not only sustaining need
but also effective requirement of corporation. It is most essential element that is required to
attention and follows procurement sources on its administration, investment that forced in this
conduct identified as the finance committee. In this report consist of contribution, margin of
safety, break even and importance of different cost. Along with, mention about the role of
budgets in controlling operation of an entity.
PART A
Contribution per unit
Particulars Amount (units)
Sales 100
Less: Variable cost
Direct Material 45
Direct Labor 30
Contribution 25
Break even points in units and sales
Breakeven point (in units): Fixed cost / Sales – variable
= 125000 / 25
= 5000 units