Financial and Management Accounting: Analysis and Strategies for Improvement

FINANCIAL and
MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
QUESTION 1..................................................................................................................................3
1 Calculation of Gross Profit And Net Profit by Stell Co Ltd in each accounting year............3
2. Calculating ratio.......................................................................................................................3
3. Providing the reasons for the company’s declining profits and cash flow problems between
2020 and 2021..............................................................................................................................4
4. Providing three strategies to improve the financial position................................................5
QUESTION 2..................................................................................................................................6
1 Computation of Break even point............................................................................................6
2. Explaining uses of Break Even Analysis to enable the firm to set profitable sales revenue
targets...........................................................................................................................................6
3. Outlining supply of more accurate management accounting information and the adoption of
the Activity Based Costing for accomplishing short and long term objectives...........................7
QUESTION 3..................................................................................................................................7
1. Calculating th three most significant variances:......................................................................7
2 Explaining the causes of these variances..................................................................................9
3. Identifying projection of likely consequences for the business pertaining to each of the
variance chosen............................................................................................................................9
4. Recommending strategies for business improvements..........................................................10
5. Presenting advantages disadvantages of a switch from Incremental Based Budgeting to ZBB
...................................................................................................................................................10
REFERENCES..............................................................................................................................11

QUESTION 1
1 Calculation of Gross Profit And Net Profit by Stell Co Ltd in each accounting year.
Profit and loss account
particulars 2021 2020
Sales Turnover 612000 970000
Cost of Sales 212000 320000
Direct labor costs 233000 212000
Gross Profit 167000 438000
Warehousing
Costs
30000 10000
Distribution Costs 55000 28000
Other overheads 35000 17000
Dividend paid 40000 60000
Total Expenses 160000 115000
Net profit 7000 323000
2. Calculating ratio
Gross Profit Ratio
Particulars Formula 2021 2020
Gross Profit 167000 438000
Sales Turnover 612000 970000
Gross Profit
Ratio
Gross
Profit/Sale
s
Turnover*
100
27.3% 45.2%
Gross profit margin is taken into consideration for evaluating that who effectively firm is
reducing cost to generate profits. From the evaluation of the gross profit it can be interpreted that

there is decreasing of profits which is indicating that company's revenue generating capacity in
current year as compared to the previous has declined. The other cause that can be articulated fro
the decrease in profitability is higher cost of goods sold. The gross profit ideal ratio is 10-20%
which is lower than articulated figure and previous year performance it is less. On the basis of
this, it can be said that firm needs to make improvement in overall performance. This allows to
ensure that cost structure is formulated properly to attract stakeholders for investment (Masdupi,
Tasman and Davista, 2018).
Net Profit Ratio
Particulars Formula 2021 2020
Net profit 7000 323000
Sales Turnover 612000 970000
Net Profit Ratio Net
Profit/Sale
s
Turnover*
100
1.1% 33.3%
Net profit estimating is related with assessing that how effectively firm is making the sales
revenue. On the basis of the computed figure it can be identified that firm's NP has decreased as
compared to the year 2020. The revenue obtained in present year is lower than the earlier
duration which is indicating that effectiveness to generate profitability has reduced that can
adversely affect firm. It is important as there are distinct form of the stakeholders who take it into
considerations for decision-making procedure. It is significant to attract investors, lenders,
suppliers, etc to connect with firm to have higher fund-raising capacity.
3. Providing the reasons for the company’s declining profits and cash flow problems between
2020 and 2021
There are various reason which has reduced the profitability of the company as
compared to the previous year. From the evaluation it can be identified that one of the main
cause that has negatively impacted the profitability of organization includes reducing of sales
revenue. It decreases the availability of cash flows in firm. The particular enterprise has received