Financial and Management Accounting: Calculation of Profit, Break-Even Analysis, and Variance Analysis

Financial and management
accounting

Table of Contents
Question – 1.................................................................................................................................3
QUESTION 2..............................................................................................................................4
Question 3........................................................................................................................................6
REFERENCES................................................................................................................................1
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Question – 1
Calculation of gross and net profit:
PARTICULARS 2021 (£) 2020 (£)
Sales 535000 780000
Cost of Sales 98000 120000
Gross Profit 437000 660000
Wages and Salaries 221000 196000
Heat, Light, Power 190000 176000
Development Costs 45000 96000
Marketing 25000 80000
Rent and Rates 105000 70000
Net Profit -149000 42000
Calculation of gross profit and net profit ratio:
PARTICULARS 2021 2020
Sales 535000 780000
Gross Profit 437000 660000
Net Profit -149000 42000
Gross Profit Ratio gross profit/sales*100 81.68% 84.62%
Net Profit Ratio net profit/sales*100 -27.85% 5.38%
Each of the above ratios i.e., gross profit ratio and net profit ratio are significant when the
profitability of the organisation is determined. This ratio is helpful in comparison of the
profitability of either more than one organisation or either of more than one period of same
organisation (Rashid, 2018). Such ratios can be compared to the industry averages of these ratios
and thus, under performance or over performance can be determined of the organisation with
respect to the industry to which it belongs.
Therefore, required strategies for improvement of these current profits can effectively framed
and implemented for such improvement and monitoring of the profits of the organisation.
Reasons for company’s declining profits:
Following can be the reasons for reduction in profits of the organisation:
 Excess of unsold stock of finished goods – It can be observed that BAS has huge amount of
closing stock of the finished goods in its stock in the year end of 2021 i.e., £ 235,000 which
is significantly larger than the last year’s stock of 2020 i.e., £ 80,000 which shows that the
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