The Legal & Financial Environment

This report discusses various financial accounting concepts, including cash budget calculation, fixed and variable costs. It provides advice on cash management and funding measures for Power Direct. It also calculates Pippa Photography's fixed cost and variable cost and compares their implications. The report explains the importance of break-even analysis in decision making and calculates the break-even point for Sam. It evaluates the profitability of Ming's business and suggests improvements.

The Legal & Financial
Environment

Table of Contents
INTRODUCTION...........................................................................................................................3
Client 1: Power Direct.....................................................................................................................3
(A) Cash Budget for Power Direct for the three-month ending June 2014.................................3
(B) Advice to Power Direct.........................................................................................................4
Client 2: Pippa Photography............................................................................................................5
(A) Calculation of Pippa’s total fixed cost..................................................................................5
(B) Characteristics of Fixed and Variable cost............................................................................6
(C) Comparison of Pippa’s fixed cost and variable cost and its implications in their business. .7
Client 3.............................................................................................................................................7
Break even analysis and how it will assist company in helping in making business decision....7
Calculate break even analysis for Sam........................................................................................8
Calculating expected profit is SAM is able to sell 1100 racquets...............................................8
Opinion on feasibility of project..................................................................................................9
Client 4.............................................................................................................................................9
Commenting on profitability of business and suggesting on improvement................................9
Preparing statement of comprehensive income and financial position statement.....................10
CONCLUSION..............................................................................................................................11
REFERENCES................................................................................................................................1

INTRODUCTION
Managing the finance and operational activities is the most significant task that need to be
done by the experts very carefully. This report will discuss the various financial accounting
concept with cash budget calculation. The report will also define the difference between the
fixed and variable cost.
Client 1: Power Direct
(A) Cash Budget for Power Direct for the three-month ending June 2014
Particular April (€) May (€) June (€)
Cash and Bank Balance at the
beginning of the month (A)
(10000) (8000) (9000)
Cash Collection:
Cash collected from credit sales* 19000 15000 1000
Total Cash Collection (B) 19000 15000 1000
Less Cash Payments:
Wage expense 10000
Packaging cost 6000
Other expenses 2000 2000 2000
Drawings 4000 4000 4000
Income Tax expense 5000
Purchase of new motor vehicle 20000
Total Cash Payment (C) (17000) 16000 26000
Cash and Bank Balance at the end
of the month
(8000) (9000) (34000)
Note* Cash is received for the debtors in the following i.e., next month from the month in which
actual sales is being made.
Justification: The company is allowed with the overdraft limit of €50000 per month and the
negative balance of all the three month is below the limit which is somewhat better but on the

other side the company also need to adopt the proper cash management and funding measure to
strong their cash flow.
(B) Advice to Power Direct
1.
For the company such as Power Direct that have fluctuate sales need to keep the strong
cash balance because they don’t know whether they will earn sufficient amount from the sales in
all month or not. Basically, cash flow is more important than the profitability because it saves the
company from the uncertain and emergency conditions and situations. Power Direct company
have to build a goal which involve the more cash inflow than cash outflow because it helps them
in growing their business. A healthy cash balance is important for the business because it is
stated that the company which have more cash with them are more liquid and they are also able
to pay its current obligation more quickly. It is also important for the business to secure their
finance if they are in their growing phase (Pierrot, 2019).
A strong cash balance provides the company to more opportunity to expand their
business in international market because cash is act as a king for the business and by using this,
they can purchase whatever they want to. If a company have healthy cash balance, then it means
that they are able to understand their business and what is good and bad for their business
activities. In order to view the actual picture of the financial position, it is crucial for the
company that they must prepare and analyse the cash forecast. With the large and strong cash
balance, the company need not to borrow money from the market on which they further need to
pay the fixed interest cost. In order to save the company from interest cost, they have to adopt a
measure for improving cash flow (Hurcan and Balibek, 2020).
2.
The Power Direct company can adopt the two measure such as cost reduction and funds
increment in order to deal with the negative cash balance of all the three months.
Ways to reduce cost:
 The company can reduce their cost by lowering their inventory level because if the
company hold more stock than requirement than its holding and ordering cost will
increase.

 The company can also reduce the cost by eliminating the wastage of resources. And this
is possible only when the productivity and efficiency of employees increased and for this
the Power direct need to provide the proper training and development program.
 The company also need to set the minimum cash balance goal and work according to it in
order to achieve the goals. They can also prepare the weekly labour schedule based on
their anticipated customer count and sales in order to reduce the unnecessary labour cost
(Eisl, Ochs and Pichler, 2019).
Way to increase fund:
 The company have to make sure that they maximum sales will be on cash basis and if
there are credit sales than the debtors pay their amount as soon as possible. For this the
company can offer discounts to the customer for the early payments.
 The company also need not to make unnecessary drawings from the business because it
reduces their cash amount and cash balance at the end of the month.
 In the given case, the Power direct company have to take the motor vehicle on rent, hire
purchase or lease rather than buying it as here they need to pay small instalment which do
not reduce their cash balance.
 The company can also increase their price of the product and services by proper
analysing the customers attraction and the needs of their products and services in the
local market (Pavithra and Shashi Kumar, 2019).
Client 2: Pippa Photography
(A) Calculation of Pippa’s total fixed cost
Particular Fixed cost
Amount (€)
Variable cost
Amount (€)
Rent expense 12000 -
Salaries payment to two photographer each with
€22000
44000 -
Payment to employed photographic technician €120
per day per week
6240 -
Advertisement cost 550

Electricity cost 1100 10400
(€4* 2hours*
1300 sittings)
Payment to receptionist and general manager 16000 -
Depreciation expense 2500 -
Sitting charge - 104000
(1300 sitting*
80)
Total 82390 114400
Note* As the extra electricity cost of €4 per client and the sitting charge is depends upon the
clients and per sittings that’s why it is treated as variable cost because it changes as per the
change in sitting of clients.
(B) Characteristics of Fixed and Variable cost
Fixed Cost
 The cost of fixed expenses in total remains same for a specific period of time and not
changes with change in output.
 But the fixed cost per units changes with the changes taken place in the output of the
product and services.
 Per unit of fixed cost increases with the decrease in output and vice versa indicate their
per unit fixed cost and units output have inverse relationship.
 The allocation of fixed cost among the departments and cost centre is basically done by
the managerial expert with their decisions.
 This cost is uncontrollable that’s why need special attention of the accountant of the
company (Bertoluci and et.al., 2018).
Variable Cost
 The variable cost has direct relation with the output because it changes according to the
changes in the final product of the company.
 The variable cost is controllable cost and the company can control it by adopting the
suitable and appropriate measures.

 This is basically considered by the company in order to compute the contribution margin.
The company can calculate the variable cost by multiplying the variable cost per unit to
the sales of the company (Talavera and et.al., 2019).
Importance of accurate identification of fixed and variable cost
The proper identification of fixed and variable cost is important to understand the better
insight of business financial position and also the point at which the company will start making
profit. This is basically identified by the using the break-even analysis of the marginal costing
tool in which the company can calculate the point at which they neither earn profit nor loses.
They also get to know about the margin of safety and contribution margin with the help of which
they can adopt the measures to reduce cost and increase revenue. If they are unable to do so, then
this will might cause high lose to the company (Okoro and Charles, 2019).
(C) Comparison of Pippa’s fixed cost and variable cost and its implications in their business
From the above calculation, it is identified that the Pippa’s variable cost is higher than its
fixed cost. In this case the fixed cost is the cost for the company which can’t changes with the
changes taken place in the clients and their sittings. And the variable cost is the cost which
changes as per the changes taken place in the sitting capacity of the clients. That’s why the extra
electricity expense of €4 per client per hour is a variable expense rather than fixed along with the
sitting charges (Talavera and et.al., 2019). The sitting charges changes if the expectation of the
Pippa of the 1300 sittings per year changes because the environment is uncertain and dynamic.
The sitting of clients can change over the year with the change in their needs and expectation.
And considering the sitting expense as fixed by ignoring the external factor is get wrong and
increase their fixed cost. And the impact of which the company will reflect less profit than the
actual figure that’s why identifying the correct fixed and variable cost is very significant for
business.
Client 3
Break even analysis and how it will assist company in helping in making business decision
The break-even analysis is a process used in order to determine the number of units to be
produced where the total cost is equal to the total revenues (Calabrò, 2017). Hence in case if the
company will produce and sell beyond the break-even point then this will result in profit for the
company. On the other hand in case the company will produce below the break- even point then

this will result in loss for the company. In this break even analysis is very essential for the
company in assisting them in business decision making. the reason behind this fact is that I'm
break even analysis assistant determining the amount of sales which is required to have a break
even that is no profit no loss situation. Hence when the company is going in advance that they
have to produce this much of production for having no profit no loss situation then the company
will have the direction that how they can produce up to that level. It is very essential for the
company have a good break even analysis in order to take effective decisions.
Calculate break even analysis for Sam
Particulars Formula Figures
Selling price per unit 25
Variable cost per unit 17.5
Contribution per unit
Selling price per unit -
variable cost per unit 7.5
Fixed cost 6600
BEP (in units)
Fixed cost / contribution per
unit 880
BEP (in value or monetary terms)
BEP (in units) * selling price
per unit 22000
Calculating expected profit is SAM is able to sell 1100 racquets
Number of units required to be sold= FC + profit/ contribution
Let the profit to be X then
6600 + X/ 7.5
X= 1650
Particulars Formula Figures
Fixed cost or expenses 6600
Desired profit 1650
Contribution per unit 7.5
Number of units required to sell
Fixed cost + desired profit
margin / contribution per
unit 1100

Opinion on feasibility of project
The present project relating to selling of the rackets is feasible. This is particularly because of the
reason that for having no profit no loss situation Sam will have to produce at least 880 units of
products (Tanco, Cat and Garat, 2019). Hence for the success of the company it is essential for
Sam to go beyond the production of 880 in order to attain higher profits. Moreover in case the
company wants to sale the 1100 rackets then they will on around 1650 profit.
Client 4
Commenting on profitability of business and suggesting on improvement
gross profit
ratio
GP/ total sales *
100 47.1589
gross profit 210640
sales 446660
net profit
ratio
NP/ total sales
*100 -0.3269
net profit -1460
net sales 446660
Evaluation of the profitability analysis of Ming financial position it can be evaluated that the
gross profit margin of the company is good. This is particularly because of the reason that the
gross profit ratio of company is 47.1 589. This is a good position for the company in order to
maintain and sustain the profitability of the company. But in against of this is the net profit ratio
of the company is a negative. This simply means that the company is not having any profit after
paying of all the expenses of the company. Thus with it can be evaluated that the direct expenses
of the company are less but as compared to it the indirect expenses of company are more and this
affects them profitability of the company and results and loss for the company. Thus for
improving this position it is advisable to company that they must try to reduce and maintain the
indirect expenses to very low. The major reason behind this fact is that the indirect expenses are
subtracted from the gross profit in order to arrive at the net profit hence if the indirect expenses

will be less then the company will be in position to earn more profit. In addition to this it is also
recommended to the company that they must try and invest within the marketing activities. This
is pertaining to the fact that with the effective marketing more consumers will be aware of the
company and its product and as a result of this the profitability of the company will increase.
Preparing statement of comprehensive income and financial position statement
statement of profit and loss
sales 446660
Less
Purchases 239,190
Add OP stock 59,830
Less CL stock 63,000 236,020
GP 210,640
Wages 173,850
Other expenses 23,230
rent 18,500
Less: rent paid in advance 3,480
15,020
net profit -1,460
With the evaluation of the statement of profit and loss it is clear that item companies on India
gross profit of 210 640. But in against of this the company is earning a net loss of 1460. This is
not a good position for the company as the profitability of the company is decreasing. Hence it is
advisable for the company to take measures in order to convert this clause in to profits by
controlling the expenses of the company and try to increase the revenue of the form.
statement of financial position
fixed asset
motor vehicle 75000
trade receivables 5270
closing stock 63000
prepaid expense 3480
total assets 146750

capital 252800
less drawing 105130
less net loss 1460
bank overdraft 540
total liabilities 146750
For that with help of team balance sheet it was clear that the total assets of the company is 1467
50. Where is the total capital invested by the company was to 52800 from which the owner has
drawn 10 5130 as drawings. In addition to this there was also bank overdraft of 540 which
resulted in total liabilities of 146750.
CONCLUSION
The report concludes the income statement and balance sheet of Ming Market Stall along
with the discussion on profitability of the business. The report also analyses the break-even point
of Sam and how this helps them in their decision-making process. The report also concludes that
way through which the Power Direct company can improve its cash budgets.

REFERENCES
Books and journals
Bertoluci, R. and et.al., 2018, September. Capacitated Vehicle Routing Problem with
Heterogeneous Fixed Proprietary Fleet and Outsourcing Delivery—A Clustering-Based
Approach. In Congress of APDIO, the Portuguese Operational Research Society (pp. 43-
55). Springer, Cham.
Calabrò, F., 2017, July. Local communities and management of cultural heritage of the inner
areas. An application of break-even analysis. In International Conference on
Computational Science and Its Applications (pp. 516-531). Springer, Cham.
Eisl, A., Ochs, C. and Pichler, S., 2019. Optimal Cash Buffers of Sovereign Debt Management
Offices. Available at SSRN 3110048.
Hurcan, Y. and Balibek, E., 2020. How to Set Up A Cash Buffer: A Practical Guide to
Developing and Implementing a Cash Buffer Policy. IMF How To Notes, 2020(004).
Okoro, C. U. and Charles, M. F. B., 2019. Fixed Assets Revaluation and Profitability: A Cross-
Sectional Study of Commercial Banks in Nigeria. Journal of Accounting and Financial
Management ISSN. 5(1). p.2019.
Pavithra, N. and Shashi Kumar, C. R., 2019. A Study on Cash Management at Mysore Electrical
Industries Limited.
Pierrot, S. W., 2019. The use of cash budgets by small, medium and micro enterprises operating
in the fast-moving consumer goods sector of the Cape Metropole (Doctoral dissertation,
Cape Peninsula University of Technology).
Talavera, D. L. and et.al., 2019. Assessment of cost-competitiveness and profitability of fixed
and tracking photovoltaic systems: The case of five specific sites. Renewable
Energy. 134. pp.902-913.
Tanco, M., Cat, L. and Garat, S., 2019. A break-even analysis for battery electric trucks in Latin
America. Journal of Cleaner Production, 228, pp.1354-1367.
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