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Unit 2 - P6 + M4 + D3

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illustrate the use of budgets as a means of exercising financial control of a selected company and analyse the reasons why costs need to be controlled to budget and evaluate the problems they have identified from unmonitored costs and budgets

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Uploaded on
February 8, 2021
Number of pages
5
Written in
2019/2020
Type
Essay
Professor(s)
Unknown
Grade
A+

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Looking at the forecast and actual cash flow it is clear where the problems occurred
throughout the year.
When looking at the cash flow forecast, it is clear to see the changes that happened com-
pared to the prediction. There was a 10% increase in wages, materials and machine
power. As well with the deficit of 4000 units, decreasing their revenue by £80,000. It was
more expensive to produce the products, as the price for the goods depends on the units
sold. Due to their poor budgeting skills of the WristBreaker company, they weren't able to
find solutions of where they could save their money, due to the change of the predicted re-
sults, of lower sales and increased variable costs. Thus leading their business to bank-
ruptcy.


The break-even chart uses the calculations from the cashflow forecast from WristBreaker
Company. To calculate the break-even point you need to divide Fixed Cost by (Unit Selling
Price - Unit Cost Price). To then calculate the time it takes to achieve break-point you need
to divide Fixed Costs by (Unit Selling Price -Unit Variable Cost) divided by sales per year
then times by 12.


Forecast Breakeven:
Fixed Cost / (Unit Selling Price
- Unit Cost Price)
63,180 / (20 - 17.5) = 25,272
For the forecast, WristBreaker
expected to achieve break-
even quantity if they sell 25,272
units.


Time: Fixed Costs/ (Unit Selling Price - Unit Variable Costs) / Sales x 12
63,180 / (20 - 17.5) = 25,,600 = 0.752 x 12 = 9 months

, For the forecast, WristBreaker expected to take around 9 months to reach break even
point.


Actual Breakeven:
Fixed Cost / (Unit Sell-
ing Price - Unit Cost
Price)
65,804 / (20 - 19.25) =
87,738
For the actual, Wrist-
Breaker to achieve
break-even quantity if
they sell 87,738 units.


Time: Fixed Costs/ (Unit Selling Price - Unit Variable Costs) / Sales x 12
65,804 / (20 - 19.25) = 87,,600 = 2.964 x 12 = 36 months
For the actual, Wristbreaker would take 36 months to reach break even point.


Overall this can show how badly Wristbreaker is doing, through the visual representation it
is visible to see how long it would take them to achieve breakeven. If WristBreaker would
be going into debt due to the lengthy time it would take them to achieve their breakeven.


Recommend Breakeven:
Fixed Cost / (Unit Selling
Price - Unit Cost Price)
50,604 / (19 - 14.05) =
10,223
For the recommended,
Wristbreaker needs to
achieve break-even
quantity if they sell
10,223 units.


Time: Fixed Costs/ (Unit
Selling Price - Unit Variable Costs) / Sales x 12
£10.48
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