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Computation of Break Even Point and Margin of Safety

Added on - 08 Dec 2020

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UGB163
Table of ContentsINTRODUCTION...........................................................................................................................1MAIN BODY..................................................................................................................................1PART A...........................................................................................................................................1Income Statement for year ended 31/12/2017........................................................................1Balance Sheet as on 31/03/2017.............................................................................................1Interpretation:...................................................................................................................................4PART B............................................................................................................................................4a. Calculation of contribution per unit for Cornpeace Ltd.....................................................4b. Computation of break even point and margin of safety.....................................................5c. Computation of profits of the company at different sales levels........................................5d. Analysis of the strategy for change in advertisement expenses and sales level.................5PART C............................................................................................................................................6a. Assessing the viability of capital projects using investment appraisal tools and techniques.6B. Advantages and disadvantages of different investment appraisal techniques..................8C. Report on benefits and limitation of using budgets as strategic planning tool...............11CONCLUSION..............................................................................................................................13REFERENCES..............................................................................................................................14
INTRODUCTIONBudgeting is tool which is used by a business to create a plan for spending the money inmost efficient way. The plan made is called as budgets and these are preprepared to forecast thebest investment plan in which money can be spent for best profitability. In the present reportIncome statement and balance sheet for Gravepale Plc is prepared and for Cornpeace Ltdcontribution and break even analysis is done. Investment plan for Dane Jones Ltd is preparedthrough various capital budgeting tools for purchasing a machine from available two options.Along with this, advantages and disadvantages of various investment appraisal techniques suchas Average rate of return, net present value and pay back period is presented.MAIN BODYPART AIncome Statement for year ended 31/12/2017ParticularsAmount (in Pounds)Sales633000Less Cost of goods sold297000Gross Profit336000Rent of Current year90000Tax on business premises2400Depreciation on Van9600Wages119175(117000+2175)Electricity7725(5700+2025)Van running expenses33600Bad debt1500Total Expenses264000Net profit72000Balance Sheet as on 31/03/2017ParticularsAmount in PoundsAmount in PoundsAssetsFixed assetsDelivery Van60000Depreciation on van9600504001
Current assetsAccounts Receivables64500Closing Stock228000Prepaid Rent22500(112500-90000)Prepaid tax4500Total Assets369900Liabilities and shareholder’s equityShareholders’ equityCapital180000Add Net Profit72000252000Current LiabilitiesO/s wages2175O/s Electricity2025Bank overdraft20700Accounts Payables93000Total Liabilities and shareholder’sequity369900Working notesBank a/cParticularsAmount in Poundsbank180000rent-112500rates-6900wages-117000van-60000Electricity-5700Purchase-39000Cash Sales129000Cash Receipts438000Cash payments-393000Van running expenses-33600Net cash at bank or Bank overdraft-20700Computation of depreciationParticularsAmount in Pounds2
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