LUBM303_ XXXXXXXXXX Level: 6 Module: Business Analytic Assignment Code: LUBM303 Learning outcomes. Upon successful completion of this module, students will have demonstrated: Knowledge Lo1. Improved...

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Business Analytic


LUBM303_1897073718 Level: 6 Module: Business Analytic Assignment Code: LUBM303 Learning outcomes. Upon successful completion of this module, students will have demonstrated: Knowledge Lo1. Improved knowledge in the collection and analysis of a variety of data. Lo2. Ability to understand and interpret business problems including basic demand and supply analysis. Skills: S1. Critical thinking and analysis skills S2. Skills in data analysis and produce information in appropriate formats for decision making in an organisation context S3. Develop skills in using software generated information to make decisions at operational, tactical and strategic levels in an organisation. Requirements: You must answer Three questions. Each question that is attempted will carry a maximum mark of 33 and 1mark for presentation. Word limit is 3,500. Question 1 Jonathan, operations manager of Milton Keynes farms limited (MKF Ltd.) lacks strong insight in any realistic business decision making. However, he has been able to use the cost diagram below to illustrate and influence costing decisions in the company, MKF Ltd: According to Jonathan, his budgeted annual output is 180,000 units, fixed cost amount to £60,000, variable costs is £0.75 per unit and the sales price is £2.00 per unit. Required: a) Develop a mathematical model using the cost information above. (7 Marks) b). Calculate the profit or loss of MKF Ltd. using the above information. (6 marks) Draw a graph with a spreadsheet, for a five-year projection from January 2022 taking into consideration an annual expected increase of 8% in variable cost and 5% increase in both output and sales price (NB. The changes must take effect from 2022). (8 marks) d) Critically analyse and comment on the costing and revenue behaviour before and after your projections. (12 marks.) Question 2 The figures below represent expenditure on advertising and sales revenue of a manufacturer of fitness equipment, Run-Well limited between the period of 2016 to 2020. Year Advertising expenditure (X) Sales revenue (Y) (£000s) (£000S) 2016 2 60 2017 5 90 2018 4 70 2019 6 100 2020 3 80 Assuming you are a newly employed graduate business analyst, you are required to: a) Calculate the correlation coefficient of advertising/sales and comment on your results. (10 marks) b) Plot a scatter diagram of the data and discuss the pattern of the relationship of the variables. (8 marks) c) Critically analyse the impact of advertising expenditure on sales and advise the marketing manager on how the company can gain a competitive advantage in the fitness industry by adopting other relevant marketing strategies. (15 marks) Question 3 Raincoat Plc. produces and install ceiling materials. Below is the company’s estimated profit statement for the next accounting year, prepared using marginal costing principles. Per unit £ £ Selling price 440,000 Variable costs: Labour 140,000 Materials 102,000 Contribution 198,000 Less Fixed Costs: Administration 40,000 Other 50,000 90,000 Profit 108,000 Two suggestions have been made in an attempt to improve profit for next year: One by the operations manager and the other by the marketing Manager. Operations manager’s suggestion The operations manager has suggested that cheaper materials could be used, which will reduce total material cost to £80,000. However, this will require additional fixed costs of £24,000 to cover the inspection of the cheaper materials . 2. Marketing manager’s suggestion The marketing manager has suggested an intensive advertising campaign. He estimates that this will increase sales volume by 20% over the estimated amount above. Variable cost as a percentage of sales revenue would not be affected by this option but extra fixed cost of £45,000 will be incurred to cover the advertising campaign. As a graduate business analyst in Raincoat, you are tasked to: a) Determine: i. The company’s breakeven point (3 marks) ii. The margin of safety as a percentage of estimated sales. (3 marks) for each of the original estimates, operations, and marketing manager’s suggestion. b) On purely financial grounds explain whether Raincoat Plc. should adopt the original plan or amend it in line with either the operations manager’s or marketing manager’s suggestion. (6 marks) c) What factors (not included in your analysis above should Raincoat Plc’s management consider before committing a company to the course of action. (6marks) (d) Critically analyse the benefits and limitations of the breakeven model, its application in marginal costing and as a business strategy for Raincoat Plc. (15 marks)
Answered 49 days AfterMar 12, 2021LUBM303

Answer To: LUBM303_ XXXXXXXXXX Level: 6 Module: Business Analytic Assignment Code: LUBM303 Learning outcomes....

Sudipta answered on Mar 30 2021
130 Votes
Table of Contents
Question 1    2
a) Mathematical model    2
b) Calculation of profit or loss    3
c) Five years projection    3
d) Critical analysis of cost and revenue behaviour    5
Question 2    7
a) Calculation of correlation coefficient    7
b) Scatterplot    8
c) Impact of advertising on sales and advice to marketing manager    8
Question 3    11
a) Determination of break-even point and margin of safety    11
b) Suggestion to Raincoat Plc.    13
c) Factors to be considered before commenting on the course of action    13
d) Critical analysis of break-even model with respect to Raincoat PLC    14
References    16
Question 1
a) Mathematical model
A mathematical model has been developed to determine the profit and break-even point of the company MKF Ltd. A breakeven point shows the point where a company gains no profit or incur any loss. Different assumptions have b
een made for both parts.
· Mathematical model to compute the profit of the firm
Assumption: Total cost = C, Total sales =R, Profit = P.
Model: (R-C) = P
Computation:
    Particulars
    Amount (in £)
    Selling price
    360000
    Fixed cost
    60000
    Variable cost
    135000
    Profit
    165000
Table 1: Computation of profit
· Mathematical model to compute BEP of the firm
X-axis of the model representing units, it is assumed that total selling units is equivalent to total production units. The gap between cost curve and sell curve is representing profit. Y-axis is showing revenue figure and cost figure of the firm.
    Fixed cost: £60,000
Variable cost: £135,000
Total cost: £195,000
Profit: £165,000
Revenue and cost (in £)
Total sells: £ 360,000
Output/Sold (Units)
Figure 1: Mathematical model
b) Calculation of profit or loss
    Particulars
    Per unit cost
    Unit
    Amount (in £)
    Amount (in £)
    Selling unit
    NA
    180000
    NA
    
    Selling price
    2
    180000
    
    360000
    Fixed cost
    NA
    180000
    60000
    
    Variable cost
    0.75
    180000
    135000
    
    Total cost
    1.083333333
    180000
    
    195000
    Profit
    0.916666667
    180000
    
    165000
Table 3: Profit or Loss calculation
From the above section, it can be determined that based on the given estimation the company will generate a profit of £ 165,000 at the end of the year.
c) Five years projection
    Particulars
    2021 (in £)
    2022 (in £)
    2023 (in £)
    2024 (in £)
    2025 (in £)
    2026 (in £)
    Selling price
    360000
    396900
    437582.25
    482434.4306
    531883.9598
    586402.0656
    Output
    180000
    189000
    198450
    208372.5
    218791.125
    229730.6813
    Selling price per unit
    2
    2.1
    2.205
    2.31525
    2.4310125
    2.552563125
    Fixed cost
    60000
    60000
    60000
    60000
    60000
    60000
    Variable cost
    135000
    145800
    157464
    170061.12
    183666.0096
    198359.2904
    Profit
    165000
    191100
    220118.25
    252373.3106
    288217.9502
    328042.7753
Table 4: Calculation of five-year projection
Figure 1: Line graph on a five-year projection
According to company’s plan they will be earning more from their sells hence, they need to invest more. As a result, both fixed cost and variable cost has been increased. Moreover, inflation could be another reason behind this higher cost. To reach the target of higher revenue the company has planned to produce higher unites at the same time selling price per unit is also increasing. As selling price is increasing at a higher pace while cost is increasing at a lower rate therefore, profit amount is also higher from its previous years between 2021 to 2026.
d) Critical analysis of cost and revenue behaviour
As per the above line graph, the blue line represents the selling price. Fixed cost and variable cost is presented in red and grey. Lastly, the yellow colour represents the profit figure. Through the graph, it can be determined that the selling price of MKF Ltd is significantly higher than the other three variables. How the company is getting benefited due to the projection and whether the projected figures are realistic or not is going to be discussed in the following section.
· As per the projections, it can be determined that every year MKF Ltd will be generating more revenue. The revenue figure for the next five years is depending on two factors. These two factors are selling price and quantity sold. Sold quantity is getting increased by 5% every year which is helping the firm to generate more revenue. However, there is an improvement in the selling price as well. a 5% improvement has taken place in the selling price as well. As a result, £ 360,000 was the revenue figure in 2021. However, it will be increased to £ 396,900 in 2022. Moreover, it will again increase to £ 437,582.25. Hence, the projection is showing the management team of MKF Ltd a positive outcome from the future.
· Marketing plan is the major cause behind higher fixed cost and variable cost. At the same time, the company has decided to generate more revenue which has reflected on the higher revenue figure.
· Selling price can be increased over the years due to external factors like inflation and decreasing price value for money. However, the proper evidence has not been provided which could justify the increasing rate of the quantity. A company will only produce higher quantities only if there is a high demand for the product in the market. It is really difficult to estimate demand for a project after five years. Therefore, the increasing figure in the output is not realistic.
· If the demand theory of the economy is being followed then it can be found that demand for a product increases only if the price gets decreases (Gries, 2020). As per the current situation, both factors are increasing at the same rate. Selling price and quantity are increasing by 5%. As demand theory is not being followed in the current context, therefore, the projection could be wrong. The company might generate lesser revenue in the future due to decreasing demand.
· According to the projection, it can be determined that the fixed cost of the company remained the same as it was in the base year. Starting from 2021 till 2026 the fixed cost remained £ 60,000. No circumstances have been followed before making this assumption. According to the economy, the price of products increases over time. Rental fee. Salary, tax and insurance are some of the common fixed costs (Liu and Tyagi, 2017). A company can't maintain the same fixed cost for five years.
· As per the projection, it can be found that variable costs increase by 6% every year. For example, the company had a total variable cost of $135,000 in the year 2021. It has increased to £ 150,255 in the year 2022. In the following years till 2026, the variable cost of the company has been increased drastically. This has also increased the total cost of the company. A company should make their strategies in such a way so that they could prevent the increasing cost (Razak et al. 2016). Increasing cost is natural while considering the market condition and other external factors like the economy.
· The projection has shown that the revenue increasing rate is 5% while the variable cost increasing rate is 6%. A company should take some initiatives in such a way so that they could achieve a higher revenue rate than the cost rate. The projection is completely opposite to the principles of a profit-making concern. Realistic facts like competition, increasing price of commodities, increasing labour cost is considered then the estimated costs are completely correct.
· The projection is also shown that the company will be incurring revenue every year. In the base year (2021) MKF Ltd has generated a profit of £ 165,000. It will be increasing to £ 186,645. In the following year itself, the profit amount will be £ 210.348.435. In the following two years in 2024 and 2025, the profit figure will be £ 236,303.1945 and £ 264,719.894 respectively. The increasing profit rate is quite impressive from a business perspective however, whether the company will be able to ensure that profit or not is a matter of question.
· If the concept of the price value of money is taken into consideration then it can be found that the value of money decreases over time. For example, if a person is able to buy a specific quantity with a certain amount of money in a year then the person will have to spend more money to get the same quantity of the product in the following year. Keeping this concept in mind, the profit figures in the next five years are not that impressive.
Question 2
a) Calculation of correlation coefficient
    Year
    Advertising expenditure (X)
    Sales revenue...
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