Financial and Management Accounting: Calculation of Profits, BEP, Variances, and ZBB

FINANCIAL
AND
MANAGEMENT
ACCOUNTING

Question No 1:
1 Calculation of Gross and Net Profit of Shell limited in each accounting year: -
Particulars 2021 (in £) 2020 (in £)
Sales Turnover (A) 612000 970000
Cost of Sales (B) 212000 320000
Direct labour costs © 233000 212000
Gross Profit
A – (B + C) 400000 650000
Indirect expenses
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 Calculation of Gross profit and net profit to sales ratios of each year along with significance of
these ratio:
Gross Profit ratio:
The gross profit ratio is important because it shows that how an organisation is performing
during the year of operation. It is important to note that such ratio helps in identifying the
performance of the corporate and such ratio if positive indicates that they are effectively
and efficiently utilising the resources in an effective manner.
Particulars Formula 2021 2020
Gross Profit 400000 650000
Net sales 612000 970000
GP ratio GP / net sales * 100 27.3% 45.2%
Net profit ratio:

The net profit ratio indicates the profits earned by the enterprise during the accounting
year. Such profits will arrive after deducting all the expenses from the sales figures.
Particulars Formula 2021 2020
Net Profit
Net sales 612000 970000
NP ratio NP / net sales * 100 1.1% 33.3%
3 Reasons for decline the profits of the company and increasing the cash flow problem between
2020 and 2021:
The reason for the decline in profits of the company would be the increase in the operational cost
of the corporate and that must be maintained to an acceptable limit so that profits will got
increase of the organisation. It is important to note that revenue should be increases by selling
the units at the higher rate so that sales figures get increased and ultimately the expenditure that
the entity is incurring to make such product will be recovered. It is necessary of the organisation
to adopt those measures so that making o their product will become easier and unnecessary cost
engaged will be avoided. The cash flow increase only with the reduction in the expenses of the
organisation and if such expense will not lower than the cost of running the business will not
recover. The profits of the company will increase only due to reduction in the indirect cost faced
by the organization.
4 Strategies that would be recommended to director to improve the financial position and detail
explanation on how the profits would increase in next year:
The strategies the business would implement to improve their financial position:
 Lower Your Expense: One of the best ways to improve the financial position is to reduce
expenses. Take a look at every area of the business and see if entity can find cheaper
alternatives for supplies, equipment and services. Find better terms for bank accounts and
insurance policies. For larger expenses, find out if entity can arrange periodic or deferred
payments to keep more cash available for them.
 Recover Outstanding Payments: Unpaid Expenses can really harm the cash flow and the
overall health of business’s finances. If this is a recurring problem for business, it may be
time to use a debt collection agency. In the meantime, make sure business regularly