Breakeven Analysis and Profitability Report (Finance Module)

This report presents a breakeven analysis, examining profitability under different scenarios. The analysis calculates breakeven revenue and profit margins for two options, highlighting the impact of variable costs. The report further explores the ethical implications of financial decisions, particularly concerning environmental costs and stakeholder interests. It evaluates a scenario involving ethical considerations and the non-inclusion of environmental costs, emphasizing the importance of ethical standards and their long-term impact on profitability. The report references relevant literature on accounting ethics, break-even analysis, and environmental economics.

Application of
management accounting

 The breakeven revenue is determined at 16200000
and this will be maintained to earn profits.
 With option 1 the breakeven revenue will be
7043478 and with option 2 it will be 7662162.
 The profits which will be made at two options will be
6405000 and 5430000 in option 1 and option 2
respectively.
Executive summary

Formula of breakeven revenue
Breakeven is the point at which the profit and loss of
the company will ne zero and only the fixed cost will
be recovered.
The formula for calculating the breakeven are as
follows:
Breakeven units= Fixed cost/contribution per unit
Breakeven revenue = Fixed cost/PV ratio

Calculation of breakeven revenue in 2018
Particulars Units Amount
Sales 30000 15000000
Variable cost 325 9750000
Contribution 175 5250000
Fixed cost 5670000
Income -420000
PV ratio 0.35
Breakeven revenue 16200000
Breakeven units 32400

Calculation of income and breakeven with option 1
Particulars Units Option 1
Sales 30000 15000000
Variable cost 97.5 2925000
Contribution 402.5 12075000
Fixed cost 5670000
Income 6405000
PV ratio 0.805
Breakeven revenue 7043478
Breakeven units 14086.96

Calculation of income and breakeven with option 2
Particulars Units Option 2
Sales 30000 15000000
Variable cost 130 3900000
Contribution 370 11100000
Fixed cost 5670000
Income 5430000
PV ratio 0.74
Breakeven revenue 7662162
Breakeven units 15324.32

Findings
The breakeven has been calculated by using the
provided data.
It has been found that there is the more profits which is
made in option 1.
The breakeven revenue will be $7043478 in this
situation.
This will be possible by reducing the variable cost.

Evaluation of Martin’s comment
• Martin has commented that they are following all the laws but
according to the ethical standards they are required to work
with integrity and in that the interest of all shall be considered.
• By undertaking the options they are looking to their benefit
but the consumers will be harmed as the cheap raw material
will be used.
• The environmental safety is not considered and due to that
comment made by martin is not in lieu with the ethical
standards.

Non-inclusion of environmental cost
• The non-inclusion of the environmental cost will be affecting
the company in future as the cost will have to be incurred at
some point of time.
• They will be required to comply by the law and as per that
cost will have to be incurred which is being avoided in the
current options.
• With the inclusion of the same the profits in the future will be
declined and company will again be in the position of losses.

References
Bampton, R., & Cowton, C. J. (2013). Taking stock of
accounting ethics scholarship: A review of the journal
literature. Journal of business ethics, 114(3), 549-563.
Aissaoui, A. (2013). Modeling OpEC fiscal break-even
Oil prices: New findings and policy Insights. Economic
Commentary, 4.
Yamamoto, Y., & Takeuchi, K. (2012). Estimating the
break-even price for forest protection in Central
Kalimantan. Environmental Economics and Policy
Studies, 14(3), 289-301.