Analyzing Cost Structure and Break-Even Point in Business Management

The assignment investigates how management decisions regarding the allocation of resources are influenced by understanding cost structures within an organization. It evaluates the impact of fixed and variable costs on the break-even point, which is critical for planning sales volume and profitability targets. The study emphasizes the necessity of regular BEP analysis to adapt to market changes effectively. By examining case studies like Premier Investments, it highlights the importance of transparent decision-making processes that involve employees, ensuring organizational efficiency in achieving desired financial outcomes.

Accounting & Financial
Management

Executive Summary
This research work offers an opportunity to apply the developing accounting and
financial management skills to the case firm, Premier Investments. Premiere investment is a
retail fashion chain throughout Australia, Hong Kong, New Zealand and UK. It recently became
first company of Australia to be part of World Retail Congress Hall of Fame. the study revolves
around Premiere Investments. This study is divided into three parts. In the first part sustainability
reporting framework for Premiere Investments have been discussed. In the second part costs
associated with ongoing operations of organization are discussed and in the last part calculations
for desired quantity based on BEP have been done. As per the study Materiality, Stakeholder
Inclusiveness and Suitability Context are important factors for reporting for Premiere
investments. The other side cost that have been identified related with the organization are:
property tax, rent, salary payment, utility expenses, direct material, piece rate labor and
commission. The calculations in the last part of the study reveals that 148333, 32962, 30689 are
the desired BEP units for Premier investments for their three brands. It has summarized that the
BE units can get affected with changes in fixed cost and contribution margin
Contents

Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................4
Part A...............................................................................................................................................4
Answer 1......................................................................................................................................4
Answer 2......................................................................................................................................6
Answer 3......................................................................................................................................8
Answer 4......................................................................................................................................9
Part B.............................................................................................................................................11
Answer 1....................................................................................................................................11
Answer 2....................................................................................................................................11
Answer 3....................................................................................................................................11
Answer 4....................................................................................................................................12
Part C.............................................................................................................................................14
Answer 1....................................................................................................................................14
Answer 2....................................................................................................................................15
Conclusion.....................................................................................................................................17
References......................................................................................................................................17

Introduction
In the past many years, CEOs of the organizations were placing more focus on holistic
reporting of the activities of an organization rather than the simple reporting, which is required
by the Accounting Standards. The report below discusses the suitability reporting framework for
the premier investments and various facts associated with it. Premier investments operate in the
range of retail fashion chains throughout the country. The brands of the organization comprise of
Smiggle, Portman, Jean, Peter, Jay Jays, Jacqui and Dotti.
Part A
Answer 1
The investment decisions of Premier organization take into account factors of economic,
environmental and societal impacts and the management. The organization is trying hard to
comply with the local laws and regulatory needs as a minimum and is also making
representations to the authorities if they consider that policies and practices of the government
undermine the policies of the organization. It is the policy of Premier Investments’ to support the
social investments, which contribute towards the sustainable development objectives of the
communities and countries in which they operate. This clearly shows that working in partnership
with the professional social developments organizations and government agencies for ensuring
the investment, addresses the material issues in a rigorous manner with the positive impacts on
society. The investments are increasingly focused on the development of the local capacity and
initiatives, which deliver social and economic returns for the local communities and host
government. The positive impact of the investment has helped the organization earn many
awards. The award recognizes the good operational performance and the high level of

investments and impact beyond any compliance. However, there have been times when the
organization has faced some loss of primary containment events of higher consequences. These
incidents are characterized as unintended processes safety events with the severe consequences.
These comprise of multiple fatalities and widespread environmental impact. The organizational
integrates the process safety protocols in the safety reviews of the projects. Such review offers
assurance that some material issues have been determined and are being managed through the
lifecycle. Safety cases are in places at all the operated installations. Such safety regimes are
aligned with the regulated standards of the country. This mainly shows the best practice and
reveals that the organization is committed to implementing the cases at all of the operated areas.
The aim of the organization is to reduce the negative impact year by year with the stated policies
of the continuous improvements to the low reasonably practicable. Periodic reviews of operation
performance are done for determining where improvements can be made. The organization
manages the operations in accordance with the policies of reducing the impact to as low as the
reasonable practices. This comprises of a focus on the effective designing, effective operation
and responsible usage.
Social impacts like workers’ right, poor conditions and long hours are still issues of
concern. The enhanced awareness and concern of the stakeholders have led to gradual responses
from the fashion industry for improving on the environmental and social impacts. The
environmental impacts associated with fashion chains are wastewater emission, solid waste
production, and depletion. For reducing the social and environmental impacts of the organization
throughout the lifecycle, corporate social responsibility policies are to be developed (Yadlapalli
& Rahman, 2016).

Answer 2
The four main GRI disclosures relevant for the Premiere Investments organization are
1. Materiality: This point reveals that report should show the organization’s economic,
environmental and social impact assessment. In financial reporting, materiality is very
important and it is considered as a threshold for influencing the economic decisions of
those using the financial statements of the organization. The concept of the threshold
is important in sustainability reporting but, it is concerned with a wider range of the
impact and stakeholders. Materiality for the sustainability reporting is not much
limited to the topics of sustainability. Determination of the materiality for the
sustainability report also comprises of considering economic, environmental and
societal impacts which cross the threshold in affecting the ability to meet the
requirements of the present without any compromise of future needs. Premier
Investments' does take care of the material standard of its accounting reporting. The
organization discusses internal and external factors that determine where is the
information is a material which comprises of organization’s mission and strategy
expressed by the stakeholders. Assessment of the materiality takes into account the
basic needs expressed in the international standards and agreements with which the
company is expected to comply with. The internal and external factors are considered
by the organization while evaluating the importance of information for reflecting the
economic, environmental and social impact.
2. Stakeholder Inclusiveness: According to GRI guidelines, the organization needs to
determine the stakeholders and explain in the report how it has responded to their
expectations. Premiere investments do define its stakeholders as entities or

individuals which can reasonably be expected to be affected by the activities of
organization and services and, whose actions can be expected to affect the ability of
the organization for successfully implementing the strategies and achieving the
objectives. For a report to be assured, the process of the engagement of the
stakeholder is documented. Whenever the stakeholder engagement process is utilized
for the reporting purpose, they need to be based on the systematic accepted
approaches. The complete approach needs to be sufficiently effective for ensuring that
the information of stakeholder are understood properly
3. Suitability Context: As per GRI guidelines, the report needs to show the
organization’s performances in the wider context of sustainability. Information of
performance is placed in the context by the organization. Reports made by the
managers of the organization reveals the broad concept that are associated with the
sustainability factor. This involves discussion on the performance of the organization
in the context of the limits and the demands that are placed on environmental and
social respective spectral levels. The organization reports on the employee wages and
social benefit level are respect to nationwide minimum and median income levels and
the capacity of the social nets for absorbing the ones in poverty and those living close
to the poverty line.
4. Completeness: This guideline says that the organization needs to convert the material
topics and indicators for reflecting the economic and social impacts and also for
enabling the stakeholders for meeting the reporting of the organization’s performance.
The organization does encompass the dimensions of the scope and time. Though, they
are still trying hard to utilize the guideline for referring the practices in information

collection and whether the presentation of the information is reasonable and
appropriate (Global Reporting, 2011).
Answer 3
The performance of Premier Investments has been hard earned by the processes that are put
in place by the Board members against the background of the extremely challenging
environment. The recent performance files of the organization reveal that in Australia, issues like
the cost of living pressures, unemployment and higher level of debt exist against the poorly
managed transition from the boom of mining, volatility in the equity markets, prices of
commodity and relative instability of the political environment in the past years. The ability to
deliver continuous strong performance and outperforming the relative to the competitors is the
main outcome of the excellence in the implication of the retail disciplines and consciously taking
actions. Premier Investments have reported a net profit of 103 million dollars approximately in
the year 2016. This result comprises of the contribution of the premier retail. The organization is
having proven record of acquiring outstanding results whatever the state of the operating
environment.
 In 2016, the organization has delivered record sales.
 Smiggle international is continuously expanding with the substantial potential upside
 Premier retail has clear growth strategy that is successfully being delivered with the
capacity and flexibility
 Premier retail is having the outstanding senior management
 The organization retains its strong financial position with the strength of the balance
sheet

The major growth of the organization is coming from Smiggle and peter brands. The
organization discloses very authentically about the environmental performance in its annual
report following the guidelines of GRI
Myer: On the other side, Myer is seeing a hit of the low share price. There is increased risk
of acquisition. According to the reports, the consumer backdrop is clearly challenging as the
retailers are experiencing a slowdown in sales over the year. Myer is currently offsetting tough
environment and is stabilizing earning through a combination of the shift to concessions and
improved price realization. While there are more cots out available still sustained sales growth is
very critical for the company. However, the organization has stabilized its comparable store sales
base within the torrid environment for discretionary retailers. The organization is also trying to
exploit and leverage the amount of customer data and insight within the Myer loyalty program
that shows a significant and strategic asset in the digital environment.
Both Premier Investment and Myer shows deep reports regarding the environmental
performance, however, Premier investments being more successful has more accurate and
relevant data for revealing than Myer.
Answer 4
The widespread compliance with the GRI guideline by the Australian retail business
mainly benefits the potential investors and shareholders of the organization.
 The report will be able to avoid the selection, its omission which is reasonably likely to
unduly or inappropriately influence the decisions or judgments by the readers.
 The report will be including both favorable and unfavorable results which can
influence the decisions of the stakeholders in the proportion of the materiality.

 Reports will distinguish between the actual presentation and the reporting
organization's interpretation of the information.
 Stakeholders that will be using the reports would be able to compare the information
reported on the economic and environment performances against the past performances
of the organization and its objectives.
The study reveals that it is important for an organization to follow GRI’s guideline for
effective accounting. When changes occur within the boundaries, scope, and content it is
important for the organization to restate current disclosures along with the historical data. This
mainly ensures that the information and the comparisons are reliable and meaningful over the
time.

Part B
Answer 1
Major Costing associated with the ongoing operations of the Smiggle and Peter
Alexander are: property taxes, insurance costs, rent, salary payments, utilities, material cost,
labor cost, commission
Answer 2
Cost behaviors of the major costs determined above in the requirement are:
 Fixed Cost: Property tax, rent, salary payment, utility expenses
 Variable Cost: Direct material, piece rate labor and commission
Answer 3
Break even analysis is mainly considered as the most important and essential tool for the
study of the cost and profit relationships at various levels of input and outputs. The break-even
analysis mainly enabled the management structure of the operational strategies of the
organization. The managers of the finance in the organization can utilize the BEP analysis for the
purpose of estimating the profits at various kinds of levels of the output. The mangers in the
organization are not just interested in knowing at what certain level the operational activities will
have break-even point, in fact they are more interested in knowing the estimation in respect of
the operational level which might yield the optimum profits. For the befit of the mangers this
analysis can in establishing the review of the pricing policies. In the case when management
people contemplated for the decrease in the price of the product, then the mangers can utilize the
relationship for analyzing what changes in the sales volume would mainly be important for the
compensation of the price enhancement.

Answer 4
Strategic priorities Objectives Measures
Financial
Being financially Strong
• Growth and
expansion
• Improvement
in Cost
Structure
• Output per
head
• ROI, ROCE
• Unit Cost
Customer
Delight The Customer
• Positioning of
the brand
• Stores have
real-life
experience
• Catalogues
having rich
content
•Corporate
Image •Share
of market
•Customer
Satisfaction
Survey results
Internal
Operational Excellence
• Minimizing
the storage and
the
transportation
cost
• Reports of
market research
• Production
Defect rate
• Time to
market the
next
generation of
products
•
Benchmarking
Index
Learning And
Growth
Motivated workforce
• Training
program
• Sharing of the
ideas and
experiences
• Information
availability
Index
• Skill and
technology
Measures
The balance scorecard of the organization offers integrated scope of the organization's
strategies and on the other side, performance measures reveal whether the company is successful
in implementing the strategies or not.

 Financial: For financial understanding, measures like unit cost and Output per head in
terms of ROI and ROCE have been considered. They are efficient measures as they
will help in determining the growth and expansion and improvements in the cost
structure.
 Customer: for understanding the customer index share of the market, customer
satisfaction index will be the beneficial measures. These measures will help in
achieving a strong position of the brand in terms of the customer.
 Internal Efficiency: For the purpose of understanding operational excellence, measures
like production defect rate and benchmarking index will be helpful. The measures will
give knowledge about the reports of the market and the operational deficiencies
 Learning and Growth: For understanding the motivated workforce index, measures like
information availability index, and skill measures will be beneficial. These measures
will help in achieving the training targets and experiences

Part C
Answer 1
1. Calculate the number of blast wash, faded wash, and ripped and scuffed finish sales that
will need to be made to:
a. Break-even
Blast wash Faded wash Ripped and scuffed
Selling price $30.00 $30.00 $35.00
Variable overhead $4.00 $3.00 $6.00
Fixed Cost 540000 540000 540000
BEV units BEV units = Fixed
Cost/ Selling price –
variable cost p.u
BEV units = Fixed
Cost/ Selling price –
variable cost p.u
BEV units = Fixed
Cost/ Selling price –
variable cost p.u
BEV units 540000/ 30-4 =
20769 units
540000/ 30-3
= 20000 units
540000/35-6 =
18620 units
b. Achieve an after-tax profit of $350,000 (provide workings)
Blast wash Faded wash Ripped and scuffed
Selling price $30.00 $30.00 $35.00
Variable overhead $4.00 $3.00 $6.00
Fixed Cost 540000 540000 540000
Profit 350,000 350,000 350,000

Units sold FC+ profit / S.P. p.u.
– V.C. p.u
FC+ profit / S.P. p.u.
– V.C. p.u
FC+ profit / S.P. p.u.
– V.C. p.u
Units sold =148333.3 =32962.9 =30689
Answer 2
There are so many reasons which reveals how organization’s break-even point can be
increased. One main reason is the increment in the fixed cost of the organization. Fixed cost like
rent and salary if increased will automatically enhance the break-even point. Second main reason
is the changes in the contribution margin. any kind of decrease in contribution will increase the
break-even point. Contribution margin is the sales minus the variable costing and variable
expenses. An enhancement in the variable costing in coming time without any corresponding
increase in selling price will cause the contribution margin to reduce. Any type of decrease in the
prices of sales, will also affect the break-even analysis. Another main factor of concern of the
change in the product mixtures and the service mixture which are being delivered by the
organization.
Changes in BEP
1. Increase in fixed cost: Earlier, the fixed cost was 540000 suppose because of rent
enhancement, the fixed cost increases to 600000, so now the BEP will be:
Blast wash Faded wash Ripped and scuffed
Selling price $30.00 $30.00 $35.00
Variable overhead $4.00 $3.00 $6.00
Fixed Cost 600000 600000 600000
BEV units BEV units = Fixed BEV units = Fixed BEV units = Fixed

Cost/ Selling price –
variable cost p.u
Cost/ Selling price –
variable cost p.u
Cost/ Selling price –
variable cost p.u
BEV units 600000/ 30-4 =
100000 units
600000/ 30-3
= 222222
units
600000/35-6 =
20689 units
2. Increase in variable cost: earlier the fixed cost was 4;3;6 respectively. Now suppose
because of enhancement, the variable cost increases to5:4:7 respectively, so now the
BEP will be:
Blast wash Faded wash Ripped and scuffed
Selling price $30.00 $30.00 $35.00
Variable overhead $5.00 $4.00 $7.00
Fixed Cost 540000 540000 540000
BEV units BEV units = Fixed
Cost/ Selling price –
variable cost p.u
BEV units = Fixed
Cost/ Selling price –
variable cost p.u
BEV units = Fixed
Cost/ Selling price –
variable cost p.u
BEV units 21600 units 20769 units 19285 units
The illustrations above reveal the changes in the BEP because of changes in the varied
factors which can increase the BEP.

Conclusion
The study successfully assesses the understanding of the learning outcomes. The study
explains and evaluates the concepts behind the management decision-making process, which are
associated with the efficient allocation of the business resources. The GRI guidelines for Premier
investments reveal that the company should involve employees in decision-making and the
information should be shared transparently with them for efficiency. The other parts of the
research study conclude that the costs associated with the organization can change the decision-
making planning of the organization any time. For effective running of the business, proper
planning of BEP analysis is needed so that organization can plan the required units it has to sale
and the desired profit they expect. Any kind of change in the fixed costing or variable costing
can change the planned quantity sales and can affect the cost structure and with that the
accounting system of the organization. For proper management finance managers of the
organization needs to analyze the BEP for the organization at regular intervals for analyzing the
company’s situation in respect of the market.
References
Global Reporting. (2011). Sustainability Reporting Guidelines. Retrieved from
Globalreporting.org: https://www.globalreporting.org/resourcelibrary/G3.1-Guidelines-
Incl-Technical-Protocol.pdf
Yadlapalli, A., & Rahman, S. (2016). Social Reporting Using GRI Disclosures: A Case of
Apparel Industry. Springer.