Business Finance: Evaluation of C/ unit, BEP, MOS, Contribution, Absorption Costing, Marginal Costing, Standard Costing System, Variance Analysis, Budget Report

BUSINESS
FINANCE

Contents
Introduction.........................................................................................................................................2
Main Body............................................................................................................................................3
Part- A..................................................................................................................................................3
(a) Evaluation of C/ unit; BEP, MOS..........................................................................................3
(b) Importance of contributions along with the suggestion of how it is significant for taking
decisions in firm-...............................................................................................................................4
(c) Compute the amount of profit by absorption costing and marginal costing..................................5
PART B................................................................................................................................................6
(a) Importance of standard costing system and variance analysis................................................6
(b) Calculation of MPV, MUV, LRV, LEV & FOEV:................................................................7
© Preparation of Budget-..................................................................................................................8
CONCLUSION..................................................................................................................................10
References..........................................................................................................................................11

Introduction
Business finance means the money which is obtained by the company owners to meet
their requirements. These needs include starting up of a business enterprise, acquiring finance
to purchase the capital assets, obtaining funds for the smooth functioning of operational
activities etc (Granz, Henn and Lutz, 2020. Availing funds helps the business in dealing with
the contingencies smoothly without hurdles in the operations of a business. Absorption
costing and marginal costing are the important mechanism that a business avails to calculate
the profit by considering the fixed and variable factors) ( Shiratori, 2019). Standard costing
system is a reliable ground on which a company can depend to reduce and control the costs.
Variance analysis acts as the controlling tool as it guides the management to opt for the best
solution. This report looks into the various aspects of marginal costing and absorption costing
along with the evaluations. It also highlights the importance and significance of contribution
in the business decision making process. Furthermore, it also represents the benefits of both
the analysis i.e., standard and variance. In addition to this, it contains the calculations of the
various items that are included in variance analysis and preparation of budget for Apparel
Plc. By considering the standard cost card.
Main Body
Part- A
(a) Evaluation of C/ unit; BEP, MOS

Analysis-
The calculated MOS is 65 % and the budgeted sales is 40000 units. Thus, it can be
clearly interpreted that actual sales will be more than 60% which is obviously less than the
budgeted one.
(b) Importance of contributions along with the suggestion of how it is significant for taking
decisions in firm-
 Contribution can be defined as the per unit basis. It reflects the increment in the
money that takes place for each product or the unit sold. It represents this after
subtracting the variable part of the business’s cost.
 Its importance for the organization is that it helps the business to segregate the fixed
cost and profit elements arriving from the product sales. It is also used to determine
the range of the product in terms of selling price, the profit levels that are expected
from the sales, distributions and commission agents, amount of the commission that is
paid to the members involved in the sales team.
 The contribution shows that part of the product’s sales revenue which in not utilized
by the variable costs, and thus in short it can be said that it contributes in covering the
fixed cost of a business (Julien, 2018).
 low contribution margin is present the business enterprise that use labour intensive
methods of production and the expenses are few & fixed. Whereas, high contribution
margin exists in the industries because they use capital intensive method of
production and so the expenses have higher fixed costs.
Below listed points gives clear understanding on how the contribution is helpful in
making business decisions-
 It helps the firm in selecting the most production. Suppose, there is company that has
crayons manufacturing machine, and it has the potential to produce pencil colour as
well as the wax colour) (Seidl and et.al., 2020). So, the management must choose the
appropriate option out of the two.
 If the contribution margin for the pencil colour higher than that of wax crayons, then
the preference shall be given to product with the higher profitability. Such decision-