• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month
Page
  1. 1
    1
  2. 2
    2
  3. 3
    3
  4. 4
    4
  5. 5
    5
  6. 6
    6
  7. 7
    7
  8. 8
    8
  9. 9
    9
  10. 10
    10
  11. 11
    11
  12. 12
    12

Profitability & Reporting Assignment

Extracts from this document...

Introduction

Profitability & Reporting Assignment Task 1a) From referring to and using the memo from Bob Harris and the figures in Appendix 1, I will be calculating the total profit. Appendix 1 is illustrated below. Division 1 2 3 4 Product P1 P2 P3 P4 Volume 7,000 6,500 10,000 8,000 S.P per unit (�) 11.00 10.00 10.50 12.00 Turnover 77,000 65,000 105,000 96,000 Materials 28,000 19,500 45,000 40,000 Labour 21,000 16,250 12,500 40,000 Other Costs Apportioned Central Overheads Personnel 10,000 8,000 7,000 10,000 Finance 5,000 6,000 6,000 7,000 Administration 4,000 4,000 6,000 6,000 TOTAL EXPENSES 68,000 53,750 76,500 103,000 PROFIT/LOSS 9,000 11,250 28,500 -7,000 Total Profit = Sum of Product 1 Profit + Sum of Product 2 Profit + Sum of Product 3 Profit + Sum of Product 4 Profit = �9,000 + �11,250 + �28,500 + �-7000 = �41, 750. Task 1b) The Saved Costs are going to be the Variable Costs. The Variable Costs from using the table above are Labour (�40,000) & Materials (�40,000). Labour costs will be saved because if division 4 was to close then Spark Ltd will not need any labour to manufacture product 4 and so no funds will need to be spent on purchasing materials to fabricate that respective product in that particular department. Subsequently, the company will save �80,000. This was determined by adding up the VC's and then deducting it from the table. The Incurred Costs which are still going to take place are the Fixed Costs. Fixed costs are those costs which remain congruent regardless of changes in the level of activity. In the case of Spark Ltd the fixed elements of costs can be identified as being Administration (�6,000), Finance (�7,000) and Personnel (�10,000). By totalling up these fixed costs it is evident that the company are going to incur �23,000. Task 1c) Based on my cost analysis in the previous question, I will now establish the change in total profit if division 4 was to close. ...read more.

Middle

To workout the profit/loss at any given point on the graph, all we have to do is measure the gap between the sales revenue and total costs at a chosen number of units, and read the amounts off the "y" axis. To test whether this method works, I will now take any two given points of both profit and loss on the chart and read the figures on the graph for those two specified points and see if they tally with my data. The rationale to calculate a certain level of profit or loss is mentioned below. In relation, these two given points are emphasised on a segregated graph in Appendix 1. The Point of Operating Profit that I have chosen to test is 35,000 units. For example, at an operating profit of 35,000 units, the profit "gap" is �110,000. This was calculated by at first looking at the maximum level of production scheduled for the first year (35,000 units), then going up to the point on the break-even chart until you reach the sales revenue figure of �770,000. Having once pinpointed the sales revenue figure, I then went down directly until I found the point of the total costs figure for 35,000 units which was �660,000. In turn, all I did was subtract the sales revenue figure of �770,000 away from the total costs of �660,000. This as a result gave me an operating profit figure of �110,000. The Selected Point at which Spark Ltd encounters a Loss and to which I have elected to use as an example is 10,000 units At an operating loss of 20,000 units, the loss "gap" is �40,000. In other words, at this point on the break-even chart, Spark Ltd encounters a deficit of �40,000 before they achieve break-even. Using the above example as a basis from which to work the loss out, all I did was simply go across the y axis until I identified 20,000 units. ...read more.

Conclusion

The method I used to verify the contribution per unit per kg was Contribution Per Unit/kg Per Unit. To obtain how much each division's products costs in terms of materials per 1 unit I referred to Appendix 1. Contribution Per Unit Per Kg Division 1 = �4.00 Contribution Per Unit/ 2kg = �2.00 per kg (Ranked 3) Division 2 = �4.50 Contribution Per Unit/1.5kg = �3.00 per kg (Ranked 1) Division 3 = �4.75 Contribution Per Unit/ 2.25kg = �2.1 per kg (Ranked 2) Division 4 = �2.00 Contribution Per Unit/ 2.5kg = 80p per kg (Ranked 4) As a direct consequence of finding out how much it costs each division in terms of contribution per unit per kg, I have now ranked each product according to which one contributes the most for Spark Ltd. If we consider the limiting factor, product 2 would be the most suited for Spark Ltd simply because it contributes/produces the most per unit, per kg. Revised Production Schedule As mentioned on the preceding page, I will now produce a revised production schedule for Spark Ltd. In order to make a final decision as to which product would be the most suitable, I will have to bear in mind the volume of each separate product that each division intends to produce because in the fax from Heather Bull, she specifically stresses that the firm will not be able to accommodate for any more than 50,000kg of materials. To calculate how much kg in terms of materials each separate product provides, I will have to multiply the expected volume of each product with the materials per 1 unit. Therefore, the revised production schedule will take the shape of something like: Product 2 = 6,500 x 1.5kg = 9,750kg Product 3 = 10,000 x 2.25kg = 22,500kg Product 1 = 7,000 x 2kg = 14,000kg Product 4 = 1500 x 2.5kg = 3,750kg Amish Patel PAR Upal Banerjeee ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Accounting & Finance section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related GCSE Accounting & Finance essays

  1. Discuss the Need for Regulation in Financial Reporting

    beyond the immediate short term but it also requires them to inform users should there be any doubt over the firm's ability to survive in its present form. The accruals concept recognises costs and revenues as they are earned, not necessarily when the cash flow relating to them is paid or received.

  2. In this assignment I am opening a tuck shop in the school grounds and ...

    1360 2960 3520.6 10000 2160.6 1700 3700 3860.6 12000 2160.6 2040 4440 4200.6 14000 2160.6 2380 5180 4540.6 16000 2160.6 2720 5920 4880.6 18000 2160.6 3060 6660 5220.6 20000 2160.6 3400 7400 5560.6 Break even Working out stage #2 Fixed costs Rent = �1950 per anum Bills = �210.60 per

  1. Comsat case

    Utilizing the arithmetic average interest rate for Aa corporate bonds gives a better estimate of Comsat's financial risk, because it reflects the ability of the organization to make interest payments to bondholders. In fact, it represents the default risk of the firm.

  2. Give an explanation of break-even analysis and explain how it supports the achievement of ...

    * Support application loans from banks and other financial institutions-the use of the technique may indicate good business sense as well as forecast profitability. Break-even can be calculated or shown on a graph. However, the calculation of break-even is simpler and quicker than drawing break-even charts.

  1. Discuss the need for regulation in financial reporting.

    Many of the profession's regulations limit the number of alternative accounting treatments available to management. Thus, whereas the law provides the general framework for what is to be accounted for in financial reports, the accountancy profession has traditionally provided rules, in the form of accounting standsards, about how items and transactions are to be accounted for.

  2. Financial Analysis of Matalan PLC

    of tax, the balance on the deferred taxation account is adjusted to that current rate of tax on accumulated timing differences. The necessary adjustment is charged or credited to the profit and loss account and hence has an immediate impact on shareholder' interest.

  1. This report has been produced as evidence for Unit 9 - 'Financial Services' - ...

    After the fixed period ends, your payments will revert to whatever the variable rate is at the time. Capped Rate This is a variable rate with a specified maximum interest rate that your payments cannot exceed, for a set period of time usually one to five years.

  2. What does Finance involve.

    Also as my business increase I can add more decoration equipments to my business to help my customers but for the start of my business I believe that these are the main items that matter. So far I have worked out my stock and decoration cost now I am going

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work