Managing Business Performance

Running head: MANAGING BUSINESS PERFORMANCE
Managing Business Performance
Name of the Student:
Name of the University:
Authors Note:

1MANAGING BUSINESS PERFORMANCE
Contents
Introduction:....................................................................................................................................2
Requirement 1:.................................................................................................................................3
Requirement 2:.................................................................................................................................3
Requirement 3:.................................................................................................................................6
Requirement 4:...............................................................................................................................13
Sensitivity analysis:...................................................................................................................14
Operational leverage:.................................................................................................................15
Scenario testing:.........................................................................................................................16
Conclusion:....................................................................................................................................19
References:....................................................................................................................................21

2MANAGING BUSINESS PERFORMANCE
Introduction:
It is important to provide the appropriate assumptions at the beginning to ensure that the
students are aware of these to properly appraise the marginal costing statements under different
underlying variable. In order to evaluate the impact of changes in underlying variables on profit
and other important parameters of an organization the base case is assumed below.
Base case scenario (Normal circumstances)
Particulars Amount (₤)
Selling price per unit of finished goods 10
Variable cost per unit of finished goods 2.5
Fixed costs 660,000
Normal sales units 120,000
Net profit 240,000
Assuming that the above is the base scenario all the calculations and scenario analysis shall be
made to evaluate the impact of changes in underlying variables on the amount of profit and other
important elements of marginal costing statement of the above organization.

3MANAGING BUSINESS PERFORMANCE
Requirement 1:
Using the base case scenario as provided in the table above the marginal costing statement of the
organization in per unit and total year format is prepared and presented below.
Particulars Per unit (₤) Total year (₤)
Sales (120000 x 10) 10.00 1,200,000.00
Less: Variable costs (120000 x 2.5) 2.50 300,000.00
Contributions 7.50 900,000.00
Less: Fixed costs 5.50 660,000.00
Per unit fixed costs: (660000 / 120000)
Net profit 2.00 240,000.00
Requirement 2:
Preparation and presentation of marginal costing statements under different scenario are
provided below.
Part a:
When the selling price will increase by 15% from the base selling price of ₤10.00 per unit the
marginal costing statement per unit and total year would look like this.
Particulars Per unit (₤) Total year (₤)
Sales (120000 x 11.50) 11.50 1,380,000.00

4MANAGING BUSINESS PERFORMANCE
Less: Variable costs (120000 x 2.5) 2.50 300,000.00
Contributions 9.00 1,080,000.00
Less: Fixed costs 5.50 660,000.00
Per unit: (660000 / 120000)
Net profit 3.50 420,000.00
Note: It has been assumed that only the sales price have increased and other underlying
variables have remained same, i.e. the variable cost per unit has remained at ₤2.50 per unit and
fixed costs have remained constant at ₤660,000. It has been assumed that except the particular
change no other changes have taken place in the underlying variables (Sofat and Hiro, 2015).
Part b:
Marginal costing statement of the organization if the original selling price reduces by 15% will
be as following.
Particulars Per unit (₤) Total year (₤)
Sales (120000 x 8.50) 8.50 1,020,000.00
Less: Variable costs (120000 x 2.5) 2.50 300,000.00
Contributions 6.00 720,000.00
Less: Fixed costs 5.50 660,000.00

5MANAGING BUSINESS PERFORMANCE
Per unit: (660000 / 120000)
Net profit 0.50 60,000.00
Note: Again it is expected that the variable cost per unit and total fixed costs would remain
unaffected due to the reduction in selling price per unit (Renz, 2016).
Part c:
The marginal costing statement of the organization if the variable costs reduces to 20% of the
original selling price is presented below.
Particulars Per unit (₤) Total year (₤)
Sales (120000 x 10) 10.00 1,200,000.00
Less: Variable costs (120000 x 2) 2.00 240,000.00
Contributions 8.00 960,000.00
Less: Fixed costs 5.50 660,000.00
Per unit: (660000 / 120000)
Net profit 2.50 300,000.00
Note: No changes in other underlying assumptions except reduction in variable costs to 20% of
original selling price (Karadag, 2015).