The Legal & Financial Environment

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.