Financial and Management Accounting: Strategies for Improving Profitability and Budgeting

FINANCIAL AND
MANAGEMENT
ACCOUNTING

TASK
Question 1
(a)
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
(b) Companies profits show that the organisation is earning a significant amount of gross profits
as compared to quantity of goods sold. But it can be seen that overall sales of the organisation
have decreased which have reduced the profitability of the organisation. The profits have
decreased from 650000 in 2020 to 400000 in 2021 which is caused due to the decrease in the
sales of the business concern. Decrease in sales have also impacted on the net profits of the
organisation it has decreased to 7000 in 2021 from 323000 in 2020.
(c) Explain the reasons behind the declining profits of the company.
The techniques the commercial firm need to execute to enhance their fiscal position:
 Reduce Expense: the most suitable method to better the fiscal point is to minimise the
cost. A person need to focuses on all the elements of its business as well as see if they can

attain more cheaper options for the tools, services and supplies as well. An individual
need to identify the more better aspects for the insurance policies and also for the bank
accounts. Additionally for the more expenses, a person requires to understand to arrange
the deferred or periodic payments in order to keep more available cash.
 Recover Outstanding Payments: Expenses that are not paid can actually have the
negative impact on the cash flow as well as the entire health of their finance of the
business. It is the continual issue for the organisation as it might take more time to utilise
a agency of the debt collection. It also need to ensure that a person consistently remind
their debtors for the payment as well as of the responsibilities.
 Sell Unused or Unwanted Assets: There are several things which occupies the space but
are of no use and if a person is paying amount for more storage so the individual need to
save more money on their expenditure. A person can auction its items which are of no
use with the help of the several auction houses as well as a person can also sell thing
through the E commerce portals.
 Consolidate Debt: At the time when attempting method in order to better the finances of
the business , it is crucial to look at their current business. If the person have the major
debt so this might be beneficial to merge this. It is often common as well as more
economical to fiscal their debt into their single payment. A person need to research as
well as also need to compare several plans before doing any of the new working.
 Lower Your Prices: At the time when this is more feasible , minimising the rates is
always a appropriate way to better the fiscal position of the company or the business.
Moreover to it, a person also need to ensure that they are losing any money. In few of the
situation even a simple breakdown assists to make the offerings more beneficial to the
consumers.
(d) Critically evaluate the three strategies which can be recommended to the directors of the
organisation.
 To established the common goals by meeting with your team members related to
increasing profits. If the team members are all aware about the goals of the
organization, then they help them to take decision and gave ideas to achieving the
goals. Motivation is also important for all members to increase their productivity.

 Marketing research is also an important part to increase the profitability.
Conducting market research help you to identify the current and potential
customers mindsets. Perhaps your potential customers would be willing to pay high
price for your product if it had specific feature and quality, or may the new
customer would be more likely to buy from you again if they received any discount
the second time and more quantity or quality of the product. It also increase
profitability of your organization.
 Develop strong marketing and branding it allows an organization to demand higher
prices for this products or services. Consumers may associate a brand with a
specific level of quality that may motivate them to purchase the product and
services from an organization, even the cost is higher than other competitive
organization.
Question 2:
(a) By using net contribution method calculate Breakeven Point of production for the new
product.
Break-Even analysis
Particulars Formula Figures
Selling price per unit 400
Variable cost per unit 100
Contribution per unit
Selling price per unit -
variable cost per unit 300
Fixed cost 275000
BEP (in units)
Fixed cost / contribution per
unit 917
BEP (in value or monetary terms)
BEP (in units) * selling price
per unit 366666.7
(b) Analyse the Break- even Analysis and cost volume profit analysis to set sales targets for
the organisation.