Business Analytics: Cost, Revenue, and Profitability Analysis Report

This report provides a comprehensive analysis of cost, revenue, and profit for MK Ltd, including a mathematical model for cost calculation, profit and loss statements, and a five-year future projection. It critically examines the costing and revenue behavior of the company, emphasizing the importance of balancing cost and sales for profitability. The report also explores correlation analysis between advertising expenditure and sales revenue for Jump Well Limited, highlighting the inverse relationship and the need for improved marketing strategies. Furthermore, it discusses factors influencing organizational growth, such as advertising and promotion, and analyzes the benefits and drawbacks of the break-even point (BEP) model, its application in margin of safety, and the business strategy of BAX PLC.

Business Analytic

TABLE OF CONTENTS
QUESTION 1...................................................................................................................................3
Development of mathematical model with use of cost information...........................................3
Calculating the profit and loss of MK Ltd based on information provided................................5
Graph displaying the five- year future projection.......................................................................5
Commenting and critically analysing the costing and revenue behaviour of company..............6
QUESTION 2...................................................................................................................................7
a)..................................................................................................................................................7
b).................................................................................................................................................9
c)................................................................................................................................................10
QUESTION 3.................................................................................................................................12
a)................................................................................................................................................12
Determining the break even point and margin of safety.........................................................12
b) Discussing that estimated profit will be sufficient or not.....................................................13
c)................................................................................................................................................14
e) Analyzing the benefits and drawbacks of BEP model, its application in margin of safety
and business strategy of BAX PLC...........................................................................................14
REFERENCES..............................................................................................................................17

QUESTION 1
Development of mathematical model with use of cost information
For the business it is very crucial that it calculate the cost in proper and effective manner.
This is majorly because of the reason that when the business is running then there will be some
or the other cost being levied by the business. Hence, it is essential for the company to ensure
that all the cost is being calculated in proper and effective way (Alderighi, Nicolini and Piga,
2019). The reason underling this fact is that when the company is having proper knowledge
relating to the cost then they will be in positon to manage their operation. This is basically
important because when the company will be knowing the total cost then they will be in position
to calculate their profitability. Hence, for increasing the profitability of the company it is
essential that there is a balance between the profit earned and the cost incurred to earn the profit.
This is essential for making a balance between the cost and profit of the company.

With the above presentation of the cost information it is clear that the total cost of the company
is 700000. This is pertaining to the fact that total variable cost per unit is 1.50 and output is
400000 units. Hence, with this it is evident that the total variable cost is 600000 and fixed cost
provided is 100000. Thus, the total cost for manufacturing 400000 units for MK Ltd is 700000.
Total cost of
company (fixed
+ variable cost)
=
£700000
Fixed cost of
company =
£ 100000
Total variable cost of
company (Quantity
produced * per unit cost =
£ 600000
Unit variable cost
of company =
£ 1.50
Quantity
produced by
company =
400000 units

Calculating the profit and loss of MK Ltd based on information provided
Particulars Amount (£)
Selling price 3
Total sales (SP * Output produced)
(3 * 40000) 1200000
Total units produced 400000
Total Fixed cost for company 100000
Total Variable cost for company 600000
Total cost for company (fixed + variable) 700000
Total Profit (Total sales – total cost)
(1200000 – 700000) 500000
The profit is the amount which the company has earned by doing the operations of the company.
the profit is the money which is left after deducting all the expenses from the total sales. Thus,
with the analysis of the above table it is clear that total profit which MK Ltd has earned is
500000.
Graph displaying the five- year future projection
Particulars
Amount
(£) 2022 2023 2024 2025 2026
Selling price 3 3.21 3.43 3.68 3.93 4.21
Total sales (SP * Output produced) 1200000 1373880 1572955 1800876 2061823 2360582
Total units produced 400000 428000 457960 490017 524318 561021
Total Fixed cost for company 100000 100000 100000 100000 100000 100000
Total Variable cost per unit for
company 1.5 1.62 1.7496 1.88957 2.04073 2.20399
Total variable cost for company 600000 693360 801247 925921 1069994 1236485
Total cost for company (fixed +
variable) 700000 793360 901247 1025921 1169994 1336485
Total Profit (Total sales – total cost) 500000 580520 671708 774956 891829 1024096

With the above table and chart it is clear that the use of cost profit analysis is very
important to be undertaken. This is particularly because of the reason that when the cost is more
than company will not be in good position. Hence, it is necessary for the company that they must
effectively manage their performance. with the above five- year projection it is clear that profit
of the company is increasing. This simply implies that with the increase in cost of company, the
profit also increases. Also, with the above chart it is clear that sales of company have increased
to a great extent and because of this, the profits of company have increased.
Commenting and critically analysing the costing and revenue behaviour of company
For the business to be get successful it is essential that there is proper costing and revenue
behaviour within the company. the reason underlying this fact is that when the company will be
focusing on more sales and profit and less cost. This is necessary pertaining to the reason that
when the cost will be more than company will be suffering loss. On the other hand, in case the
company will be having more of the sales in comparison to the cost then there will be profit.
Also, in case company will be having good profits then this will improve the working efficiency
of the company (Hanh and Huy, 2021). The amount of profit can be used in improving the
business in proper and effective manner. Also, the company need to work in direction of
increasing the profit as it will assist the company in managing and having a competitive
advantage. This is essential as when the profitability of company will be high then this will be
resulting in the benefit to the company.

Moreover, with respect to MK Ltd they are able to manage and maintain the balance
between cost and sales so that there is high profit which company can utilise in order to improve
its operations. Hence, for this it is necessary for MK Ltd to make a proper calculation for the
profit or loss being incurred by the company. Moreover, with help of the effective cost analysis
the company can make proper and effective decision for the betterment of the company. This is
pertaining to the fact that when the cost of each and every activity is clear than this will
acknowledge the company that how they can manage the cost. Thus, by comparing the cost of
the different activities then this will guide MK Ltd in deciding which activity is more profitable
and which is not. Hence, on the basis of this information MK Ltd can decide that which activity
is to be focused and which is not.
Also, the above costing system or model highlights the fact that total cost comprises of
the combination of fixed and variable cost. This is particularly because of the reason that
business generally incurs these two type of costs only. Hence, it is essential that cost is being
analysed in proper and effective manner (Inaba, 2018). Also for MK Ltd it is essential that all the
variable and fixed cost are being analysed in proper and effective manner and compared in
proper and correct manner. Thus, this will outline the clear fact that how much profit is being
generated by the company by the use of cost which is being levied by the company. Hence, it can
be stated that when there is a good balance between the cost and sales then company will be
earning good amount of profit.
QUESTION 2
a)
Correlation coefficient of advertising/sales
Year
Advertising expenditure
(X)
Sales revenue
(Y)
2016 2 100
2017 5 90
2018 4 70
2019 6 60
2020 3 80
X Y X - Mx Y - My (X - Mx)^2 (Y - My)^2
(X -
Mx)(Y -
My)
2 100 -2 20 4 400 -40

5 90 1 10 1 100 10
4 70 0 -10 0 100 0
6 60 2 -20 4 400 -40
3 80 -1 0 1 0 0
Mean (Mx)
= 4
Mean (My) =
80
Sum
(SSx)= 10
Sum (Ssy)=
1000
Sum = -
70
Sum=20 Sum= 400
R Calculation
r = ∑((X - My)(Y - Mx)) / √((SSx)(SSy))
r = -70 / √((10)(1000)) = 0.7
Advertising expenditure
(X)
Sales revenue
(Y)
Advertising expenditure
(X) 1
Sales revenue (Y) -0.7 1
Correlation aids in assessing that how on factor get influenced from the another. In the case, it
can be articulated that sales revenue is an independent factor whose performance relies on
dependent factor such as advertising expenditure. It is widely utilized by organization to
identify the extent of improvement it requires to make for getting the positive outcome. If the
answer has derived in negative figure that shows that there is inverse relation that indicates
change in one factor will lead to inverse direction alteration in dependent variable (Schober,
Boerand Schwarte, 2018). Value of correlation lies between the range of -1 to 1 that aid in
understanding that what kind of relationship is existing.
On the basis of above calculation it can be interpreted that correlation between the two
variable shown helps in identifying the s relation between these. The derived outcome shows
results like -0.7 and 1 respectively for x and y variable. The obtained outcome of negative 0.7
shows that there is inverse relationship which the reflecting that company’s sales will go in
downfall when the advertising expense will rise. In addition to this, it can be interpreted that
company’s efforts are not properly exerted in which requires to be improved f or increasing
sales. Computation of correlation not only allow to provide the information in respective to take
strategic decision (Makowski and et.al., 2020). The specific organization can get the assistance
in obtaining data regarding the linear dependency of variable. Jump well limited can asses the
ability to make proper evaluation that how an few factors can impact the other components of

organization. It provides assistance in making significant evaluation of aspects that which are
lacking areas and how it can make improvements.
b)
From above pictorial presentation helps in evaluating the pattern prevailing between two factors.
The illustrated table shows relationship between advertising expense and sales so that proper
justification can be provided. It can be articulated that there is inverse relationship between
the highlighted factors. By comparing the bar presenting sales and advert-sing this can be
stated that there sales is going downward trend and advertising is moving in upward direct. This
is reflecting ineffectiveness of advertising efforts and strategy conducted by the individual.
Inverse relationship indicates that there is requirement of making changes so that positive
outcome can be derived by Jump well limited. In addition to this, visual presentation provides
ability to highlight results in easy and under-stable manner.
c)
There are numerous factors which contribute in achieving the organizational growth. In order
to attain success it becomes essential for the organization to pay attention on different aspects
that can increase company’s progress (Senthilnathan, 2019). Advertising and promotion is

largely helps in spreading the awareness regarding the products features and qualities so that
customer can get the sufficient information for making purchasing decision.
In the current competitive environment, the awareness regarding consumer rights &
duties has increased which forces an organization to be in such position that it doe snot harm
consumer interest. Competition in the the market has inclined which requires firm to present the
sufficient information so that full disclosure duty of business can be accomplished. Marketing
& promotion function of company is essential for gaining the competitiveness so that deeper
information regarding weight, size, characteristics, colour, etc should be share with customer.
Marketing is basically concerned with providing the information and connecting with
customers so that positive relationship can be established (Fong and et.al., 2021). There are
various components which play role of sales determinants and highly influence the functioning
in both the terms monetary and non financial. Sales get highly affected from level and type
advert sing and marketing strategy adopted by firm . in addition to this, it can be articulated that
for improving the sales,. firm can put higher efforts on spreading awareness and connecting with
people.
It can positively affect the attitude, taste & preferences of customers, etc. Thus using
appropriate strategy can aid in getting significant position to make people aware about the
product and services. Marketing as well play role of overcoming competition with help of
gaining competitiveness as compared to the other participants of industry. Brand loyalty,
commitment, etc can be attained through developing fair and corrective manner of promotional
participates. This in turn aids in building trustworthiness among customers so that greater
compatibility can be obtained to tackle the prevailing circumstances (Stone, 2021). Data can be
gathered from the prevailing marketing practices to assess satisfaction level of buyers. There is
need to improve existing feature of product or not, how well organization is recognized, etc
answer can be derived for getting the information regarding actual performance.. It increases
the demand of customer by promoting competitive benefit.
There are both positive and negative influence of marketing practices on buyers which need to
be remember by manager of Jump well limited. There should be clear message regarding
qualities of offering for providing favorable impact on buyers purchasing decision. To avoid
negative influence like wrong interpretation of message, inappropriate or legal action against
specified organization. The suitable tactic for promoting company’s offerings it becomes

essential for the organization to ensure that suitable type of activities are conducted (Konks,
Krasnov and Sumarokova, 2021). In order to have positive impact on firm’s reputation it
becomes essential for firm to apply better actions of marketing in turn g leading position
though effective marketing can be derived.
Along with the advertising, there are also many other different marketing strategies
which will be assistive to Jump- Well limited to gain a competitive advantage. The current and
latest marketing strategy for the company to follow is the social media marketing and other
digital marketing technologies. In the current environment, people have become very advance
and as a result of this they are very active on internet and other social networking websites (Li,
Larimo and Leonidou, 2021). Hence, when Jump- Well limited will focus on the social media
marketing and other related digital marketing then this will affect the working of the company
and sales effectively. The reason underlying this fact is that when Jump- Well limited will
market its product and services through social media then it will attract large number of
consumers. Thus, as a result of this, sales of company will increase and further it will increase
profit of company.
Along with this, it is also beneficial for Jump- Well limited that they must have a focus
on SEO that is Search Engine Optimisation as well. This SEO is a technique which relates with
making modifications within the website of the company. The reason pertaining to the fact is that
in the modern world the consumer before going to anywhere first checks the website of the
company. This is because of the reason that website is the place where a person can find each
and every information of the company and its services and reviews from critics. Hence, a good
focus on SEO will assist Jump- Well limited will assist the company in improving the
performance of business.
QUESTION 3
a)
Determining the break even point and margin of safety
i)
Break-even point in terms of units
Particulars Amount (£)
Fixed cost 140000

Variable cost 160000
Total cost 300000
Total sales 384000
Profit 84000
Computation of BEP
Particulars Formula Amount (£)
Selling price per unit (SPU) 640
Variable cost per unit
(VCPU) 250
Contribution per unit (CPU) SPU - VCPU 390
Fixed cost (FC) 140000
Breakeven point FC / CPU 359
Break even sales BEP units * SPU 229743.59
Break even point is basically shows the level where firm will become capable of recovering
all of the expenses incurred fro functioning of firm. On the basis of above table, it can be
interpreted that BEP in units is 359 and in value is 229743.5 for arriving at the stage of no loss
or profit.
ii)
Margin of safety
Particulars Formula Figures
Margin of safety Actual sales – BEP sales
384000 - 229743.59
= 154256.41
Margin of safety in % 40.17
On the basis of above data it can be interpreted that margin of safety is 40.17% that is
indicating the risk of loss which can be faced by firm because of changes in sales.