Accounting Assignment: Break-Even Analysis and Financial Reporting

This accounting assignment solution addresses key concepts in financial accounting. It begins with an introduction to the significance and scope of accounting, emphasizing its role in recording, summarizing, and analyzing financial transactions. The solution includes the preparation of an income statement and balance sheet for Potus Corporation, demonstrating the application of accounting principles. The assignment then delves into break-even point analysis, explaining its importance as a financial tool for business owners, along with its advantages and disadvantages. Further, the solution covers cost accounting, including cost classifications based on variability and controllability. The assignment also explores the differences between finance and accounting, and describes the different types of accounting, highlighting the roles performed in each. Overall, this document provides a detailed analysis of financial accounting principles and their practical application.

Accounting

Table of Contents
INTRODUCTION ..........................................................................................................................1
QUESTION 1...................................................................................................................................1
a) Significance of Accounting and also explain the Scope of Accounting.................................1
b) Prepare an Income statement and Balance sheet of Potus Corporation as at 30.06.19 ..........2
QUESTION 2...................................................................................................................................4
a) Breakeven point analysis is an important financial analysis tool used by business owners.. .4
b) Robert Industries produces a single product. The following are the financial numbers
related to this product..................................................................................................................6
QUESTION 3...................................................................................................................................6
a) The Walter Group provides the following data for June 2019 when 15,000 units were
manufactured...............................................................................................................................6
b) variable overhead spending variance.....................................................................................8
c) Variance Analysis and highlight its Advantages and Disadvantages.....................................8
QUESTION 4...................................................................................................................................9
a) Components considered while preparing budget in company. Major consideration business
owners should have to consider while making budget and forecast. .........................................9
b) Prepare a Cash budget for the Quarter April To June based on the following data and
additional information...............................................................................................................10
QUESTION 5.................................................................................................................................11
Define the term cost? Discuss about cost classification based on variability and controllability.
...................................................................................................................................................11
QUESTION 6 ................................................................................................................................12
a) Difference between finance and accounts.............................................................................12
b) Describe the 3 types of Accounting with special emphasis on the roles performed in each.
...................................................................................................................................................14
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

QUESTION 1
Accounting is the procedure within that financial transactions are recorded which are
pertaining to a business (Kieso, Weygandt and Warfield, 2019). This question of report will
going to cover significan of accounting as well as also explain scope of the same. In addition to
this, income and balance sheet statements of Potus Corporation has been prepared.
a) Significance of Accounting and also explain the Scope of Accounting.
Accounting is the procedure within that financial transactions are recorded which are
pertaining to a business. Respective process involves summarizing, analysing as well as
reporting these transactions for oversight regulators, agencies as well as tax collection entities. In
addition to this, financial statement utilise within accounting is concise summary of financial
transactions over an accounting period, financial position, cash flows and summarizing also
summarised operations of business firm. Apart from this, there are several significance of
accounting explanation of these are as follows :-
 Analysis purpose/decision making – In an organisation decision making is based on
sound analysis of financial statements which is product of accounting information system
(Libby, 2017). If accounts are not kept properly it may be difficult to make decision in
effective manner as well as business executives will be acting in blindness. Moreover,
investors both current and potential investing activity is based on analysing accounting
information. Information related to profitability, liquidity, efficiency and many more
obtained by the information which has been provided by accounting information system.
 Record Keeping – Account play important or primary role in keeping records. Data as
well as information has been gathered from several sources, collated, analysed,
organised, commincated to its end users for informed economic decision making which is
work as positive factors in long run yield.
 Help in evaluating business performance – Accounting record reflect outcomes of
operations and also the statements of financial position. In addition to this, various profit
& loss accounts ratio and balance sheet are calculated that assist user of financial
statements for analysing performance of an business organisation (Smith, 2019). For
instance, turnover ratio, debt equity ratio. Current ratio etc.. Although, for analysing
variance manager of company can compare previous period accounting data with current
and budgeted figures.

 Helps to manage and monitor cash flow – By accounting system working capital and
cash requirement of an organisation has been taken care properly. In simple term it can be
said that, through accounting system an organisation can manage its cash inflow and
outflow in effective manner.
Scope of accounting – Accounting have its wide scope as well as area of application and its
utilisation is not limited for business world alone. But also spread over in all the spheres of
society and also in professions (Li and Sloan, 2017). In addition to this, within any social
institution or professional activity whether they are earning profit or not financial transactions
take place in it. Thus, there arises required to record as well as summarising transaction at the
time of their occurance and also necessity of finding net outcomes for same after expiry of
specific fixed period. Apart from this, thwere is requirement for communication and
interpretation of such information to the appropriate person. Only when accounting utilisation
can assist to overcome such issues.
Within modern world, practices related to accounting system is not only in every business
institution but also take place in several non-trading institutions such as Colleges, School,
charitable trust clubs, Co-operative society and many more. Along with this, professional such as
practicing lawyers, medical practitioners, Chartered Accountants and many more also adopt
suitable type of accounting methods within their working. In simple term it can be said that
accounting method utilise by each and everyone who involved within series of financial
transactions (Shipman, JSwanquist and Whited, 2016). Apart from this, accounting is dynamic
subject so, its scope and area of operation is getting enhnace with the modification in socio-
economic changes. As result of continous reaserch in the new area application of accounting
principles as well as policies are emerged. Social accounting, national accounting and human
resources accounting are illustration of new area of application of accounting system.
b) Prepare an Income statement and Balance sheet of Potus Corporation as at 30.06.19
Income statement – It is one of three essential financial statements utilise for reporting an
organisation's financial performance within specific accounting period, with other key statements
being balance sheet as well as cash flow. It is also known as profit and loss statements as well as
statements for revenue and expense. In addition to this, income statements of an organisation
primarily focus on revenue and expenses of business firm during specific time period.

Balance sheet – It is an financial statements of an organisation's assets, liabilities as well
as shareholder's equity within specific time duration. Along with this, it provide basis for
computing rate of return as well as evaluating its capital structure. Balance sheet is financial
statements which provides snapshot of what an business firm owns and owes as well as also the
amount invested by shareholders. Formula which utilise for a balance sheet is Assets =
Liabilities – Shareholder's equity.
Income statement of Potus Corporation as at 30.6.19
Revenues 37436
Cost of goods sold 26980
Gross profit 10456
Operating expenses
Selling & administrative
expenses 3624
Non operating expenses
Research & development
expenses 1982
Operating profit 4850
Interest Expenses 450
Earning before tax 4400
Tax expenses 1100
Net income 3300
As per the above table it is calculate that from the sales amount less amounts of cost of
goods sold which is (37436- 56980) to get amount of the gross profit. There is getting amount of
gross profit about 10456. After that calculate the amount of net profit and for this follow the
procedure in systematic manner like less amount of operating expenses such as selling &
administrative expenses and non operating expenses like R&D expenses. After deduct the
amount get operating profit which is 4850 then less amount of the interest expenses and get

amount of earning before tax then deduct amount of the tax expenses and at the end get amount
of the net income which is 3300.
Balance sheet of Potus Corporation as at 30.6.19
Assets ('000)
Current assets
Cash 4895
Inventory 8517
Accounts receivable 5714
Total Current assets 19126
Fixed assets
Land 981
Plant & Machinery 7154
Total fixed assets 8135
Other Assets 3300
Total Assets 30561
Liabilities
Current liabilities
Accounts payable 7156
Long term liabilities 20105
Net income 3300
Total Liabilities 30561
From the above table it has been analysed that company's total assets and liabilities are
equal. Assets section classified into different subheading like current assets, fixed assets and

other assets. In fixed assets consist of Land and plant & machinery like 981, 7154 respectively.
In current assets consist of cash, inventory and accounts receivable so total current assets is
19126. So company have total assets are 30561 and current liabilities have accounts payable
which is 7156 and long term liabilities and net income. So company have total current liabilities
are 30561.
QUESTION 2
This question is based on the break even point analysis where company get no profit and
no loss. For this require to know importance of this point and how to beneficial when Robert
industries applied this method (Lara, Josma and Penalva, 2016). Along with also mentioned
about the advantages and drawbacks of this analysis. There are some figure that use to calculate
the contribution per unit and sales value due to change of profit.
a) Breakeven point analysis is an important financial analysis tool used by business owners.
Break even Analysis: It is a technique which is applied by most of the companies in
broad manner to manage production activities as well as accounts management. This analysis
depended on classifying in production cost in between those which are known as variables. A
break even point analysis is utilised to analysis the number of units or dollars of revenue required
to cover total cost (Loughran and McDonald, 2016).
(1) Importance of Break even point analysis:
It is important aspect to run business activities effectively and for good business plan. It
supports to organisation to analysis the cost framework and the number of units that required to
be sold in respect to cover the cost or generate income. Cost control and monitoring: sine managers analysis the fixed and the variable costs that
impact on the profitability of an organisation. They can analysis the impact of the
changes to costs that supports in break even analysis (Maskell, Baggaley and Grasso,
2017). It supports to analysis the extent of flexibility in the cost that impact in the
profitability of break even point. Help devise a pricing strategy: Changes in selling price can impact on the break even
point. Such as, selling price is deducted that time a firm required to sell more break even.
Hence, with the help of analysis a manager of organisation decide whether they required

to changes in the selling price and according to that devise a pricing strategy for the
same.
 Determine the number of units to be sold: To calculate the point require to analysis how
many units sold by the marketing department so it helps to owner to know selling
quantity. The selling price of every product, the variable cost of every item and total
fixed costs is needed to analysis of break even.
2) Advantages and disadvantages of break even point analysis
There are defined different advantages of the Break even point analysis in context of
Robert industries such as: Make or buy decision: The break even analysis is assist in making a choice between two
courses of activities to make versus to buy (leGivoly, Hayn and Katz, 2017). When
variable cost is lesser than the price that has to be paid top an outside supplier, it may be
better to produce than to buy. Financial Structure: Break even analysis is supplying an understanding of the nature of
profits in relation to results. This understanding is essential in preparing the financial
framework of an organisation.
 Relation between fixed and variable cost: This analysis can help to know identify the
relation in between fixed and variable cost that helps to calculate contribution cost and
conduct further activities of the business.
 Measure the profit: Through the analysis an organisation calculate all the units and their
price after that know that how much profit or loss (Mi and et. al., 2016). According to
that they set production quantity and apply different strategy to enhance the profitability
of business.
Every technique have good and bad side so as usual this techniques have some
disadvantages that impact on the business in negative manner such as: Based on assumption: The break even point analysis mainly based on the assumption
because there are predicting sales price are constant at all the stages of results. As well as
sales also assume the production quantity and according to that apply all the strategies to
get set result for the business entity. Time consuming: It may take lot of time to prepare chart of break even point and require
to have proper knowledge of the all activities to prepare the chart effectively (Cameran,

Campa and Francis, 2018). If there is not focusing on every part so result will be wrong
so there is required to more attention on all the activities which is considering in the
chart.
 Single product: This analysis is applied by the organisation on only single product not on
double product. So organisation is dealing into single product and single mix of products
so easily applied by them.
b) Robert Industries produces a single product. The following are the financial numbers related
to this product.
Selling Price $250 per unit
Variable Cost $100 per unit
Fixed Cost 56000
QUESTION 3
This question defined about the different material and labour analysis which is changes as
per the price and rate of price (Otley, 2016). There is analysing of the variance analysis which is
utilised for the individual variances and compute all the activities. Along with mentioned
limitation and advantages of variance analysis in broad manner.
a) The Walter Group provides the following data for June 2019 when 15,000 units were
manufactured.
Standard Actual
Standard Quantity 8.50 Actual Quantity 6.75
Standard Price 7.50 Actual Price 13.5
63.75 91.125
Direct material Price variance: (Actual units produced * act material/unit) x (Actual price –
standard price)
= (7.50 – 13.50) * 6.75
= (6) * 6.75

= (40.5)
Standard Actual
Revised Standard
Quantity
6.74 Actual Quantity 6.75
Standard Price 7.50 Actual Price 13.5
50.55 91.125
Direct material quantity/ Usage variance: Standard Price x [(Actual Units produced x Act
Mat/unit) – (Actual units produced x Standard Mat/unit)]
= (6.74 – 6.75) * 7.50
= 0.075 (A)
Total material cost variance: (Total standard cost – Total actual cost)
= [( Standard quantity * Standard price) – (Actual quantity – Actual cost)]
= ( 8.50 * 7.50) - ( 6.75 * 13.5)
= 63.75 – 91.125
= 27.375 (A)
Standard Actual
Standard Labour Hour 5.5 Actual Labour Hour 6.5
Standard Cost 15 Actual Cost 12.2
82.5 79.3
Direct labour rate variance: (Act units produced x Actual Lab hrs/unit) x (Actual Price –
Standard Price)
= ( 15 – 12.2 ) * 6.5
= 2.8 * 6.5
= 18.2
Particulars Revised Std Actual
Input 4.36 15 6.5 12.2

Loss 0 0
Output 18889 15000
Direct labour efficiency variance: Std Price x [(Act units produced x Act Lab hrs) – (Act units
produced x Std Lab hrs/unit)]
= (5.5 – 6.5) * 15
= (1) * 15
= (15)
Total labour cost variance: Labour rate variance + Labour efficiency variance
= ( Standard hour * Standard rate) - (Actual hour * Actual rate)
= (5.5 * 15) – (6.5 * 12.2)
= 82.5 – 79.3
= 3.2
b) variable overhead spending variance
Standard rate = $10.40
Actual Rate = $9.30
Labour hours = 260
Variance analysis: (Standard rate - Actual Rate ) - Actual hours
= (10.40 – 9.30) * 260
= 1.1 * 260
= 286 (F)
From the analysis it is getting that is is favourable.
c) Variance Analysis and highlight its Advantages and Disadvantages.
It is the study of deviations of actual behaviour versus forecasted or set nature in
budgeting or management accounting. Variance analysis is mainly related with a producing
production cost (Wildavsky, Lockhart and Coughlin, 2018). It is selected by company to
recognise the reason of differences between manufacturing of standard or set costs of the input
that should have happened for the actual products produced and the actual cost of the inputs
utilised for the actual products manufactured. Variance analysis can be defined into two steps
such as:

 Computing and recording individual variances
 Understanding the reason of every variance
There are defined advantages and disadvantages of the variance analysis to good and bad
part of this technique:
Advantages - It is significant control tool due to it draws attention to areas where actual
performance is different from the planned activities (Karabarbounis and Neiman, 2019). The
other benefit of this analysis that it can help to recognising different areas where assets are not
effectively used and field where adjust all the requirement. It mainly promotes the performance
of the business with different business management. Variance analysis can also be utilised to
analysis areas where cost over run and recognition whether standard cost set up as per the reason.
Disadvantage - Variance analysis have broad drawback in that it takes a long period of
time to investigate the impact of the variance and hence corrective actions are delayed. The
observing tool results in large lag time and however application of control measures in
significant manner. It is sensitive analysis for the efficiency measurement that analysis that
variation in output can be attributed to variation in input. Sensitivity analysis examine the impact
of the actual results if it different from the planned operations.
QUESTION 4
Budget is estimation of revenue as well as expenses over specified future time period and
it is usually compiled as well as re-evaluated on specific period basis (Biddle, Ma and Song,
2016). This question of report will going to elaborate budget as well as components which
company have to consider while preparing budget. In addition to this, cash budget will be
prepared for quarter April to June.
a) Components considered while preparing budget in company. Major consideration business
owners should have to consider while making budget and forecast.
Budget is an estimation of expenses as well as revenue of specified time period and it is
generally re-evaluated and complied on periodic basis. In addition to this, budget can be design
for a family, person, group of people, government, country, multinational organisation and many
more who else spending money (Hall and O'Dwyer, 2017). Moreover, within an organisation or
company budget is internal tool which utilise by management as well as not needed for reporting