Financial Accounting Assignment - Gelco Ltd Project Evaluation

This financial accounting assignment evaluates Gelco Ltd's two projects based on ARR, NPV, payback period and profitability index. It also discusses the suitability of payback period and ARR as investment approaches and the advantages and disadvantages of discounting technique and net present value.

Running head: FINANCIAL ACCOUNTING ASSIGNMENT
Financial accounting assignment
Name of the student
Name of the university
Student ID
Author note

1FINANCIAL ACCOUNTING ASSIGNMENT
Table of Contents
Question 1........................................................................................................................................2
(a) Payback period..................................................................................................................3
(b) Accounting rate of return (ARR)......................................................................................6
(c) Discounting technique and net present value....................................................................8
(d) Profitability index (PI)....................................................................................................10
Question 2......................................................................................................................................12
(a) Relevance of variance analysis.......................................................................................12
(b) Strategies for saving the market leadership....................................................................15
(c) Break-even point and margin of safety...........................................................................17
(d) Absorption costing..........................................................................................................19
Reference.......................................................................................................................................21

2FINANCIAL ACCOUNTING ASSIGNMENT
Question 1
Gelco Ltd is considering 2 projects for its expansion with different cash flows and useful
lives. Project A has useful life span of 4 years and requires £85,000 as initial investment whereas
project B has useful life span of 5 years and requires £60,000 as initial investment. These
projects will be evaluated based on their ARR, NPV and payback period and profitability index.
Project A
Year 0 Year 1 Year 2 Year 3 Year 4
Cash flows -£ 85,000.00 £ 15,000.00
£
35,000.00
£
32,000.00
£
53,000.00
Depreciation -£ 17,000.00
-£
17,000.00
-£
17,000.00
-£
17,000.00
Salvage value
£
5,000.00
Cash flows -£ 85,000.00 -£ 2,000.00
£
18,000.00
£
15,000.00
£
41,000.00
Discounting @ 10% £ 1.00
£
0.91
£
0.83
£
0.75
£
0.68
Discounted cash flows -£ 85,000.00 -£ 1,818.18
£
14,876.03
£
11,269.72
£
28,003.55
NPV -£ 32,668.88
ARR 18.75%
Profitability Index 0.62
Discounted payback
period More than 4 years
Year Cash flows
Cumulative
cash flows
0 -£ 85,000.00 -£ 85,000.00
1 -£ 1,818.18 -£ 86,818.18
2 £ 14,876.03 -£ 71,942.15
3 £ 11,269.72 -£ 60,672.43
4 £ 28,003.55 -£ 32,668.88
Project B
Year 0
Year
1 Year 2 Year 3 Year 4 Year 5

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Cash flows -£ 60,000.00
£
17,000
.00
£
23,000.00
£
6,900.00
£
12,000.00
£
14,000.00
Depreciation
-£
12,000
.00
-£
9,600.00
-£
7,680.00
-£
6,144.00
-£
4,915.20
Cash flows -£ 60,000.00
£
5,000.
00
£
13,400.00
-£
780.00
£
5,856.00
£
9,084.80
Discounting @ 10%
£
1.00
£
0.91
£
0.83
£
0.75
£
0.68
£
0.62
Discounted cash
flows -£ 60,000.00
£
4,545.
45
£
11,074.38
-£
586.03
£
3,999.73
£
5,640.95
NPV -£ 35,325.52
ARR 12.15%
Profitability Index 0.29
Discounted payback
period More than 5 years
(a) Payback period
Payback period is the financial metric for the analysis of cash flow that addresses the
question related to how long the project will take to recover the investment made for acquiring
the project and how long it will take for inflow return. Answer to these questions is the payback
period of the project. Payback period for the investment is time taken by it for the cumulative
returns to break-even the cumulative costs. To be more specific, payback period is the break-
even point for time. Like the other metrics for cash flow, payback period considers the
investment view of cash flow stream that follows the action or investment (Baum and Crosby
2014). While any business is starting up the investors, owners, employees generally have one
fundamental question in mind that is when the business will break-even that is when the business
will start earning profit. Payback analysis however does not consider the number of units sold

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rather it considers the magnitudes and timings of the cash outflows and inflows. In this way the
payback period measures break-even point in time (Ezeokoli, Adebisi and Olukolajo 2014)
This approach is also called as the pay out, pay off or the recoupment period method. As
per this approach original investment of project shall be received in shorter period. In other
words, the entity will have additional savings or earnings if project is implemented. Hence, the
payback period is used to measure of time period for original cost of project that is to be
recovered from the additional earnings or from additional savings from the project. While total
cash inflows from the investment are equal to the total outflow the period is known as the
payback period. Cash inflows are computed for finding out payback period (Schlegel, Frank and
Britzelmaier 2016). Here, the term cash inflows mean annual net earnings before the
depreciation and after taxes. If the payback period is considered as the sole criteria for accepting
or rejecting any project the project will be acceptable if the useful life exceeds the payback
period of the project if the company does not specify any particular criteria like time during
which the investment shall be recouped. However, in most of the cases the management
determines the maximum period in terms of years during which the initial investment is required
to be recovered. Further, while 2 or more projects are those are mutually exclusive are
considered for choosing they can be ranked as per the payback period duration. Hence, in this
case the project with shorter payback period is assigned the 1st rank followed by other projects
(Hoesli and MacGregor 2014).
Looking into the payback period of both Project A and Project B it can be stated that both
the projects are not able to recover the amount of initial investment during their lifetime that is 4
years for Project A and 5 years for Project B. Hence, the projects are not acceptable. Further, the

5FINANCIAL ACCOUNTING ASSIGNMENT
allowable timeframe for re-coup of the capital is 3 years which is not satisfied by any of the
project and hence, they are not acceptable.
Suitability of payback period as an investment approach for decision making
Most significant benefit of payback period is the simplicity. It is easy to compare various
projects and taking decisions regarding its acceptability as the project with shortest payback
period is accepted (Sangogboye, Droegehorn and Porras 2016). However the payback period
approach has different theoretical as well as practical drawbacks as follows –
 Time value of money – it is not considered by payback period. Hence, the cash flows
received in the earlier years of the project get higher weightage as compared to the later
years. 2 projects with same payback period may generate different cash flows that is one
project may generate higher cha flows and one project may generate higher cash flows in
later periods. In such case, the payback method will not provide clear determination
regarding which product is to be selected (Baddeley 2017).
 Overlooks the cash flows received after the payback period – for some of the project the
larger cash flows may not be generated in payback periods and can provide higher returns
in the later periods. Rejecting such project over projects with shorter payback period may
lead to unwise decision.
 Overlooks the profitability of the project – having shorter payback period does not
assures its profitability. If cash flows after the payback period are reduced drastically the
project may never provide any return and will be proved as unwise investment.
 Overlooks the return on the investment – some of the entities require the capital
investment for exceeding certain hurdle associated with the rate of return otherwise the

6FINANCIAL ACCOUNTING ASSIGNMENT
project is rejected. Payback period however overlooks the rate of return (Venables, Laird
and Overman 2014).
Considering the above mentioned drawbacks, payback period is not considered as a
suitable approach in decision making.
(b) Accounting rate of return (ARR)
ARR is the rate of return that is ratio of the projected accounting profit of any project to
average investment that is made in the project. It is used as a technique for investment appraisal.
In other word, the ARR is arithmetic mean of the accounting income that is expected to be
generated during each of the year over the lifetime of the project. ARR focuses on the net income
of the project rather than concentrating on the cash flows. Generally ARR is measured as the
ratio of project’s annual average expected net income to the average investment. If ARR
considered as the sole criteria for accepting or rejecting any project the project is accepted if the
ARR is more that the required rate of return. Hence, if there are more than one projects those are
mutually exclusive the project with higher ARR is accepted (Braun et al. 2014).
Looking into the ARR of both Project A and Project B it can be stated that both the
projects have ARR of more than required rate of return that is 10%. However, if any project is to
be selected, Project A shall be chosen against Project B as the ARR of Project A is 18.75%
whereas the ARR of Project B is 12.15%.
Implications of assessing projects with ARR approach
Various advantages associated with ARR approach are as follows –

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 Comparison – ARR approach assists in comparing the new projects with the cost
effective projects or with the other competitive projects
 Easier in computing – this approach is easier in understanding and computing the
payback period. It further considers the savings or profits taking place over the entire
financial span of the project (Brief and Lawson 2014).
 Clear view regarding profitability – it provides clear view regarding profitability for any
particular project. Further it presents perception of the net earnings that is the earnings
after depreciation and tax payments
 Satisfies the interests of the owner – owners are interested in returns of their investments
and hence, this approach helps in satisfying the interests of the owner with regard to the
investment returns (Kramná 2014).
 Accounting profit – this approach considers the concept for accounting profit. Profit here
can be determined through computing return rates. Accounting profit can be computed
easily with the assistance of accounting records.
 Measuring current performance – this approach is useful while measuring the firm’s
present performance.
However, ARR approach has some of the disadvantages as follows –
 Ignores time factor and external factors – this approach overlooks the time factor while
selecting the alternate use of the fund. Further, this method does not take into account the
external factors that hamper the profit earning capability of the project.
 Decision making issues – people generate different results if return on investment and
ARR are separately computed (Brotherson et al. 2014).

8FINANCIAL ACCOUNTING ASSIGNMENT
 It considers only accounting profits – it does not takes into consideration the cash inflow
and focuses only on accounting profits.
Hence, if ARR is considered as the sole approach for analyzing the acceptability of a
project it will not be appropriate as it overlooks the time value of money which is an important
aspect (Rich and Rose 2014).
(c) Discounting technique and net present value
Advantages of using the discounting technique
The discounting technique is crucial for professional toolbox. It allows the analyst to
express the investment as the single number that is equivalent to the cash value for today.
Analysts, investors and the corporate managers uses the discounting techniques to all type of
investments like bonds, stocks and businesses including the expansions and acquisitions
(Gorshkov et al. 2014). Some of the recognized advantages of discounting technique are as
follows –
 Major advantage of discounting technique is it reduces the investment into single figure.
If net present value of the project is positive, investment is expected to generate income
and in contrary if it’s negative the project is expected to wash out the money. This
enables down or up decisions regarding individual investment. Further, it allows to make
the choices between investments those are significantly different (Žižlavský 2014).
 Reliability and accuracy – using the discounting technique for net present value is most
reliable and accurate approach for taking investment related decisions. provided that
estimate that goes into computation that is more or less correct no other approach are as
good for recognizing the investment that produces maximum value.

9FINANCIAL ACCOUNTING ASSIGNMENT
 Time factor – it gives importance to time factor which in turn makes adequate provision
for risk and uncertainty. Further it offers good measure for relative profitability of the
capital expenses through reducing earning to present value (Gallo 2014).
Net present value
NPV is the prominent technique used for analysis of financial project. It is equal to
present value of all the future cash flows of project reduced by initial investment made for the
project. It is considered as crucial as well as useful while taking the decisions associated with the
investment in the project, machinery or plant. NPV is present value of any asset. To be more
specific, NPV is the value that can be obtained through using the asset. Computation of NPV
requires 3 things including discounting rate, stream of the future cash outflows or inflows and
amount of initial investment (Leyman and Vanhoucke 2016). The analyst is required to discount
future cash flows through appropriate discounting rate and subtract the initial cash outflow from
entire discounted cash flows. It is used for determining whether the project or the investment is
worth accepting through comparing 2 things – total value of the future cash flows and initial
investment. NPV simply provides conclusion regarding a project’s acceptability that is whether
the project will generate earning for the shareholders or not if undertaken. It brings complicated
cash flows stream into simple weighing scale where it is easily known that which one is the
heavier. It is closely associated with capital budgeting. Capital budgeting requires extensive use
of the NPV technique. It is one of the major approach that is used under capital budgeting. It
cannot be denied that NPV is one of the best approaches to analyze the projects however final
decision regarding the project cannot be made based on this single approach as it is always better
option to look into the other sides of the dice (Gorshkov et al. 2018).

10FINANCIAL ACCOUNTING ASSIGNMENT
Looking into the NPV of both Project A and Project B it can be stated that both the
projects have negative NPV that is both the projects are not able to recover the amount of initial
investment. Hence, both the projects will wash out the money of the investor if undertake and
shall not be accepted. However, if any project is to be selected, Project A shall be chosen against
Project B as the NPV of Project A is – £ 32,668.88 whereas the NPV of Project B is – £
35,325.52.
(d) Profitability index (PI)
PI is the fraction which is equal to present value of the future cash flows divided by the
investment cost. Present value of the future cash flows means money that is expected to be
generated from investment. Here, the initial investment is the money put down for making the
money. PI provides 3 possible outcomes – 1st one is the number is less than one where the
investment shall be avoided as it signifies that the investment will cost more as compared to the
amount it will generate. 2nd outcome is the number is equal to one where the investments will
break-even with the money that will be generated by the project. Most desirable situation is to
have the outcome of more than one where the investment is lower as compared to the amount of
money generated by the project. It helps the investors to understand expected strength of the
return as compared to initial investment. PI is computed through dividing present value of the
future cash flows that is anticipated to be generated by capital project through initial investment
of project. Initial investment here is the required cash flow at the beginning of project. Future
cash flows here do not include initial amount of investment. Generally the PI is used for ranking
the investment of a firm or project (Pless et al. 2016). As the entities usually have financial
resources in limited amount or are required to maximize the profits for the shareholders, they
generally invest in the project which seems to be most profitable. However, if numbers of

11FINANCIAL ACCOUNTING ASSIGNMENT
possible investment projects are there the entity has the option to use the PI for ranking the
projects from high to low and take the decision regarding which one offers greatest benefit.
Though some of the projects results into higher NPV, those projects may be asset over as they do
not symbolize most benefit use for the assets of the entity. It is noteworthy that the major issue of
using PI is that it does not enable the owner to take into account the project’s size. Using NPV
approach for analyzing the investment project may solve the issue. The time required by the
project and profitability shall also be considered (Pless et al. 2016).
In the given case, the managing director is allowed for the capital expenditure amounting
to £100,000 and the investment alternatives can be implemented in the tiered states and are not
mutually-exclusive. Initial investment required for Project A is £85,000 and for Project B is
£60,000. Hence, both the projects require capital expenses of less than £100,000 and hence, the
managing director is in the position of investing in both the projects alternatively with the
allowable capital expenditure limit. However, looking into the PI of both Project A and Project B
it can be stated that both the projects have PI of less than 1 that is the investment shall be avoided
as it signifies that the investment will cost more as compared to the amount it will generate.
Hence, both the projects will wash out the money of the investor if undertaken and shall not be
accepted. However, if any project is to be selected, Project A shall be chosen against Project B as
the PI of Project A is 0.62 whereas the PI of Project B is 0.29.

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Question 2
Telco Private Limited is reviewing the management accounts for the only product sold by
it that is very successful. With regard to that review shall be made for building the understanding
of variances.
(a) Relevance of variance analysis
Variance analysis is regarded as the study for deviations of the actual behavior against the
planned behaviors under management accounting or budgeting. It is generally concerned with
the way in which the differences of actual and planned behaviors signify how the business
performances are affected. Variance analyses are split into 2 steps – computing as well as
recording the individual variances and understanding cause of each variance (Taieb and Atiya
2015). Reasons of variances can be as follows –
 Changes in the market scenario that have rendered standards practices for budgeting
unrealistic. For instance, short supply of the raw materials will lead to increase the
supplier’s prices.
 Standards of budgeting that is followed can be proved as idealistic in the nature. For
instance, output of the machine may be assumed wrongly.
 Delivery of service may not be as per the level, for instance, planning is made for 8
working hours a day however, actually the scenario may allow for 6 hours working only
(Ray and Jenamani 2016).
Variances are of different types as follows –

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 Controllable variance – the variance that can be controlled when the department or
individual or section ore division can be held responsible for the same.
 Uncontrollable variance – generally the external factors are accountable for the
uncontrollable variances. Managements are not able to control external factors. When the
department or individual or section ore division cannot be held responsible for the
variance the same is called as uncontrollable variance (Roberts and Russo 2014).
 Favorable variance – while the actual cost is lower as compared to standard cost at the
pre-determined activity level, such variance is known as favorable variance. Management
concentrates to get the actual result in exchange of the costs that is lower as compared to
standard cost. It signifies efficiency of the business operation.
 Unfavorable variance – while the while the actual cost is higher as compared to standard
cost at the pre-determined activity level, such variance is known as unfavorable variance.
Management concentrates to get the actual result in exchange of the costs that is higher as
compared to standard cost. It signifies inefficiency of the business operation (Chambers,
Freeny and Heiberger 2017)
 Basic variance – these variances are generated owing to the monetary rate that is price of
the labor rate and raw materials and the account of non-monetary factors like physical
units in the time or quantity. Basic variances owing to monetary factors include labor rate
variance, material price variance and expenses variance. In the same way the basic
variance owing to non-monetary factors include labor efficiency variance, material
quantity variance and the volume variance (Ziaja et al. 2016).
Variance analysis shall be carried out on annual basis by all the centers. Main purpose of
analysis is comparing estimated costs of the rate proposal with the actual costs for same period.

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It will help to establish the variance among the cost estimates and the actual cost year after year.
Variance in the management accounting can be favorable where the costs are lower than
budgeted or revenues are higher than expected or can be adverse where the costs are higher than
budgeted or revenues are lower than expected (Al-Asfour and Lettau 2014). Variance analyses
are relevant for the following purposes –
 Variance analysis assists in efficient budgeting activity as the management prefers to
have lower gaps against planned budgets. Preferring the lower deviation generally leads
the managers in making detailed as well as forward looking decisions regarding budgets.
 Variance analysis performs as the control mechanism. Large deviation analysis on the
key items assists the entities in analyzing the reasons that assists the managements to look
into the possible approaches how such deviations can be avoided (Leavy 2017).
 It facilitates in allocating the responsibilities and engages the control mechanisms on the
dependents wherever required. For instance, if the variance for labor efficiency is
unfavorable or the procurement of the raw material price variance is unfavorable,
management can improve the control of these departments for increasing the efficiency
(Marx 2015).
Following outcome has been arrived regarding sales variance of Telco Private Limited
Sales variance
Yea
r Budgeted quantities Actual sold
Varianc
e
F/
U
2014 7000 6500 -500 U
2015 8100 8300 200 F
2016 9200 8600 -600 U
2017 10000 10150 150 F
F = Favorable, U = Unfavorable

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From the above table it can be identified that for the years 2015 and 2017 there are
favorable variance whereas for the year 2014 and 2016 there are unfavorable variance for sales.
Favorable sales variance signifies higher standard sales as compared to budgeted sales. Reasons
behind favorable sales volume variance are – favorable sales quantity variance that is higher
numbers of units sold as compared to budget or favorable sales mix variance that is higher
proportion of sold products those are more profitable as compared to the budget (Hansen and
Mowen 2014). On the contrary, adverse sales variance signifies lower sales as compared to the
budget. Reasons behind the adverse sales volume variance are - unfavorable sales quantity
variance that is lower numbers of units sold as compared to budget or unfavorable sales mix
variance that is lower proportion of sold products as compared to the budget. Hence, it is crucial
to investigate sales volume variance through further analysis regarding sales quantity in case
where the entity deals with only one product (Vizzuso 2015).
(b) Strategies for saving the market leadership
As per the data provided, Telco Private Limited used to sell their product at £16 per unit
till the year 2017. However, due to increased competition in the year 2019 the entity drops their
product price to £14 per unit. Competitive advantage is the superiority that can be gained by the
organization while it can provide same value as provided by the competitors but with the lower
price or higher price can be charged through providing higher value through the product
differentiation. Most of the forms for competitive advantage means either the firm is in the
position to produce some of the product or service that provides better customer value as
compared to its competitors or it can produce the service or product at lower cost compared to its
competitors (Kar 2014).

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Maintain or enhancing the market share does not take place overnight and takes hard
work as well careful planning. Strategies those can be used by the entity for saving the market
leadership are as follows –
 Offer something niche – becoming the market leader or maintaining the market
leadership under the competitive market with the well-established players is quite tough.
Hence, rather than trying to fight over the broad and saturated markets the entity may find
narrow market and the specialized service or product. While the market size is smaller, it
is easier to become the leader (Lee et al. 2015).
 Be the purple cow – even under the niche market competition is there. For becoming the
leader the businesses are required to find out the ways for differentiating themselves from
competitors in the industry. Purple cow means transforming the business through being
remarkable and stand-out product that is the key to success. For saving the market
leadership the entity shall focus on what can set the business apart that is what is not done
by the competitors or whether any different or new ways are there to think for the
product.
 Quick move – instead of waiting for the perfection for launching any product, the entity
shall keep on iterating and executing. Keeping in mind the thing that the product will not
be perfect ever will disqualify the same to be presented at launch. Once the product is
released in the market customers feedback shall be considered and their concerns, needs
and preferences shall be taken into consideration. The entity shall further strive to the
innovation; adapt the changes under the market and staying 2 steps ahead of competition
(Ramini et al. 2014).

17FINANCIAL ACCOUNTING ASSIGNMENT
 Satisfy the customers – customers have the power in the technology and social-media
driven world of today and they are in the position to break or make the entity. A service
or product is required to be of high quality for satisfying the customers and turning them
into the brand ambassadors for the entity. If the product receives negative feedback or
review on the social media addressing the issues, the marketing team shall taken into
consideration the comments for improving the product.
 Investing for marketing - ad strategies and creative marketing is required for reaching the
consumers and building the brand awareness. The entity shall be ambitious with the
marketing and look for the creative and new ways for marketing the product and
connecting with the customers (Liu and Santos 2015).
(c) Break-even point and margin of safety
Break-even point (BEP) is defined as the point where the total costs or expenses equal to
the sales revenue. It is described as the point where there is no profit or no loss. For grasping the
break-even concept it is crucial that to understand that all the costs are not equal, some are fixed
and some are variable. Fixed expenses are those not dependent on amount of services or goods
produced by business. On the contrary, variable costs are those associated with volume and
changes with the volume produced. For computing the break-even point in units, fixed costs are
divided by per unit contribution margin. On the other hand, the margin of safety (MOS) is the
difference among the actual sales and the break-even sales (Batkovskiy et al. 2017). Though BEP
and MOS are the broad domain of the CBP (cost-volume-profit) analysis, they are different in
various aspects. Major differences are –
 BEP means the sales quantities that cover the total fixed costs and the total variable
costs. Sales lower than the BEP will lead to losses while the sales above the BEP will

18FINANCIAL ACCOUNTING ASSIGNMENT
lead to profits after taking into account all the expenses. On the other side, MOS is
margin between actual sales and BEP sales. It signifies the safety level that the entity can
enjoy before incurring the losses (Braun et al. 2014).
 BEP is considered as the measure for sustenance while MOS is considered as the
measure for the risks.
 If the BEP is lower it will be better for the entity while the higher MOS is better for the
entity (Leiby and Madsen 2017).
From the given data for Telco Private Limited for the years 2014 to 2017 the break-even-
point in units and margin of safety will be as follows –
2014 2015 2016 2017
Selling price 16 16 16 16
Variable cost 8 8 8 8
Fixed cost 62000 62000 62000 62000
Break-even point (units) 7750 7750 7750 7750
Actual sales (units) 6500 8300 8600 10150
Margin of safety (units) -1250 550 850 2400
From the above table it can be identified that the break-even point for all the years are
same at 7750 units as the selling price, variable costs and fixed costs for all the years are same.
However, the margin of safety is different for all the years as the actual sales level for all the
years are different. It can be identified that for the year 2014 the BEP is lower than the actual
sales and MOS is in negative that signifies that the company is not able to generate profit for the
year 2014. However, for other years that are for 2015, 2016 and 2017 the BEP is higher than the
actual sales and MOS is in positive that signifies that the company is able to generate profit for
those years. Further, the MOS of the entity is in increasing trend as the sales units of the entity is
in increasing trend.

19FINANCIAL ACCOUNTING ASSIGNMENT
(d) Absorption costing
Absorption costing is the accumulation of cost and method of reporting that treats all the
costs associated with manufacturing that includes direct labor, direct material, variable overhead
as well as fixed overhead as the costs of production. Generally the fixed costs are allocated to the
output units using the hours for direct labor, material costs or machine hours. The process of cost
allocation is called as the absorption costing as each of the units produced absorbs the portion of
the all the incurred manufacturing costs (Kaplan and Atkinson 2015). However, it is the
traditional approach for the product costing and it is used for the tax returns and external
financial statements. Hence, under the generally accepted accounting practices the fixed costs are
assigned to output. Absorption costing is different as it considers the fixed manufacturing
overheads. Moreover, it is not an easy job to factor the fixed manufacturing costs while
computing per unit costs of the goods that is not taken into consideration by other approaches
like the variable costing (Fisher and Krumwiede 2015).
From the given data, the absorption cost per unit will be as follows –
Absorption costing
2014 2015 2016 2017
Variable costs per unit 8 8 8 8
Fixed costs per unit 9.54 7.47 7.21 6.11
Absorption cost per unit 17.54 15.47 15.21 14.11
It can be identified from the above that the absorption cost per unit for the year 2014 is
highest and for 2017 it is lowest. Further, the absorption cost per unit is in reducing trend and
reached to £14.11 per unit from £17.54 per unit.

20FINANCIAL ACCOUNTING ASSIGNMENT
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