This document is an assignment submission for an accounting course. It contains two questions with multiple parts each on financial and management accounting topics. For question one, it provides a cash flow statement and analysis for a company over three months. For question two, it performs a breakeven analysis for a company, calculating the breakeven point in units and sales value, and exploring the impacts of changes in selling price and sales units. Tables and graphs are included to illustrate the calculations. A bibliography of references is provided at the end.

1. 1
ACC2002L Financial & Management Accounting
Assignment 2 (Group)
Submitted by
K.C.Nandika Perera
N.P. Senerath Yapa
U.G.G.Sasanka Wimalasiri
Lecturer: Dr. Ming Yen Tan
Submission Date: 19th February 2017

2. 2
Table of Contents
Question 01.................................................................................................................................4
a)................................................................................................................................................. 4
b)................................................................................................................................................. 7
Question 02............................................................................................................................... 10
a)............................................................................................................................................... 10
b)............................................................................................................................................... 11
c)............................................................................................................................................... 12
d)............................................................................................................................................... 13
Bibliography............................................................................................................................. 15

3. 3
List ofTables, Graphs & Drawings
a) Table 1 –Cash flow statement..................................................................................................4
Table 2 - Breakeven Analysis calculation...................................................................................... 12
Graph 1 –Break evenAnalysis for question 02.............................................................................. 11
Drawing 1 Break-even Point........................................................................................................ 13

4. 4
Question 01
a) Table 1 –Cash flow statement
Total cash available at the end of the November 2016 is € 198,794. But the new investment has
been budgeted as € 250,000.Therefore the available cash balance is not sufficient to make the
Best Ltd cash position over the period of September 2016 to November 2016.
Sept Oct Nov
Inflow
Cash sales 186,340.00 204,974.00 225,471.40
Credit sales 66,000.00 72,600.00 79,860.00
252,340.00 277,574.00 305,331.40
Outflow
Purchases -132,000.00 -145,200.00 -159,720.00
Wages -12,000.00 -12,000.00 -12,000.00
Commission -16,940.00 -18,634.00 -20,497.40
Overhead -20,000.00 -20,000.00 -20,000.00
Rent and council tax -12,000.00 0.00 -12,000.00
Telephone, Electricity -17,000.00 -17,000.00 -17,000.00
Loan interest 0 -2,500.00 0
Tax 0 0 -30,000.00
Total cash out flow 209,940.00 215334 271,217.40
Net Cash flow 42,400.00 62,240.00 34,114.00
Opening balance 10,000.00 32,400.00 77,640.00
Closing balance 52,400.00 94,640.00 108,754.00
Cash retained 20,000 20,000 20,000
Minimum balance 32,400.00 77,640.00 88,754.00

5. 5
new investment. So company can’t purchase that machine. If company needed to purchase this
machine they have to find out external financial source for fund this project.
Workings
Sales
July Rs.220,000 *
10
100
70% - 154,000 - July
= 22,000 .00 30% - 66,000 - September
August Rs. 242,000 *
10
100
70% - 169,400 – August
= 24,200. 30% - 72,600 - October
September Rs.266, 200 *
10
100
70 % -186,340 – September
= 26,620 30% - 79,860 - November
October Rs.292, 820 *
10
100
70% - 204,974 October
= 29,282 30 % - 87,846 December
November Rs.1, 322,102 *
10
100
70% - 225,471.40 –December
= 30 % - 96,630.60 –January
Sep 186,340 Oct 204,974 Nov 225,471.40
66,000 72,600 79,860.00
252,340 277,574 305,331.40
Purchases

6. 6
August = 220,000 *
60
100
= 132,000 - September
September = 242,000 *
60
100
= 145,200 October
October = 266,200 *
60
100
= 159,720 – November
November = 292,820 *
60
100
= 175,692 –December
Commission
Sep = 242,000 *
07
100
= 16,940.00
Oct = 266,200 ∗
07
100
= 18,634.00
Nov = 292,820 ∗
07
100
= 20,497.40
Interest
Bi monthly
(150,000 * 10%) = 15,000 /6 = Rs. 2500

7. 7
b)
Top down budgeting is “where organisations develop or set the total or top budget and then
break it down into the component parts within that budget” (Woolley, 2014).
Advantages
Cost Control
I money is allocated at the beginning for the tasks from the top-level in the major project and,
after that, to the lower level tasks. This helps project managers and company executives to
assign in a better manner their restricted resources and manage their costs in an effective way
(Florin, 2011).
Efficiency
In here project managers allocate resources and budgets to each stage of the project. This could
be an efficient process, but it could also be somewhat ineffective. Allocating budget and
resources, from the beginning, for the tasks at a high-level, determine more effective usage of
those resources (Florin, 2011).
Disadvantages
Need for Expertise
Members of management team and project managers are not sufficiently trained and their
expertise with top- down budgeting is low, so they can not properly allocate funds for every
project. For this needs a wide range of experience, knowledge and ability to accomplish that
situation; without this, the project could be either underfunded or, sometimes, overfunded.
(Florin, 2011)
Process Difficulties
If there is a situation when the project manager does not find the correct solution for funding
lower-level tasks, the worker responsible for those tasks can find themselves in a difficult
position in order to accomplish proposed tasks related by the necessary resources. This
situation could conduct to bad feelings, over flow the cost and delays in development of the
project. (Florin, 2011)
Bottom up budgeting is “where you start with a list or plan or schedule of the things you want
to do and then cost it up to get the total budget” (Woolley, 2014).

8. 8
Advantages
Accurate
Here budgets are prepared by looking at each task separately. So no task or function forgot.
Then budgets get very accurately for each department and tasks. Resource predictions, detailed
costs and product and sales forecasts are very correct. All individual department budgets are
situated at a high level of quality (Business Knowledge S, 2003).
Increase employee motivation
This budgeting technique is decentralized and also participative nature. This helps to increase
the motivation and involving of employees. Employee motivation is directly related to job
performance, higher morale, unit-level ownership, higher commitment and more satisfaction.
Employees get motivate and then increase morale of them and helps to perform best output
(Business Knowledge S, 2003).
Decentralized and Participative.
Bottom-up process is a participative approach that allowed, at the budget preparation, input
from organization managers and also employees (Florin, 2011).
Disadvantages
Misrepresenting Budget Figures.
Mostly managers think they will not give all money as they request. So they request more than
what they actually need. Then waste of money and made conflicts among project teams happen
due to over requesting funds for the project.Then it’s difficult to actually draw up a complete a
list of every step and task that will be necessary project (Business Knowledge S, 2003).
Time Required.
In here major problem is the amount of time it consumes. Individual managers firstly crate their
budgets then upper managers and executives review all individual submitted budgets and
calculate final budgets. Finally approval or feedback that requires recalculations as mentioned
above all process can be repeated many times and finally approved budget approved. (Florin,
2011).

9. 9
Lack of Expertise
To prepare budgets all managerial staff responsible for that. So they need to have enough
experience in budgeting domain and some confidence working with financial resource
allocation. But lack of knowledge and skill among managerial staff helps to get problems or
miss calculations among budget figures (Florin, 2011).
.

10. 10
Question 02
a)
I. Contribution = selling price –variable cost
Contribution per unit = (
600,000
30,000
)
= 270,000/30,000
= € 11 per unit.
II. BEP in Units =
𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
=
110,000
11
= 10,000 units.
III. Margin of safety in units = Expected sales – BEP sales
= 30,000 -10,000
= 20,000 units.
IV. Sales (12,000*20) 240,0000 €
Direct material (12,000*2) 24,000 €
Direct labour (12,000*4) 48,000 €
Variable O/H (12,000*3) 36,000 €
Fixed O/H 110,000 € (218,000)
Profit 22,000 €
V. Target Sales ( units) =
𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡+𝑇𝑎𝑟𝑔𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑀𝑎𝑟𝑔𝑖𝑛
=
110,000+159,000
11
= 24,454.54 units

11. 11
b)
Graph 1 –Breakeven Analysis for question 02
Break even salesvalue =200,000 €
Break evenunits = 10,000
0 €
50,000 €
100,000 €
150,000 €
200,000 €
250,000 €
300,000 €
0 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000 11000 12000
SALESVALUES
UNITS
BREAK EVEN ANALYSIS
Total cost Sales
FC
Loss area
Profitarea

12. 12
units fixed cost variable cost Total cost Sales
0 110,000 € 0 € 110,000 € 0 €
1000 110,000 € 9,000 € 119,000 € 20,000 €
2000 110,000 € 18,000 € 128,000 € 40,000 €
3000 110,000 € 27,000 € 137,000 € 60,000 €
4000 110,000 € 36,000 € 146,000 € 80,000 €
5000 110,000 € 45,000 € 155,000 € 100,000 €
6000 110,000 € 54,000 € 164,000 € 120,000 €
7000 110,000 € 63,000 € 173,000 € 140,000 €
8000 110,000 € 72,000 € 182,000 € 160,000 €
9000 110,000 € 81,000 € 191,000 € 180,000 €
10000 110,000 € 90,000 € 200,000 € 200,000 €
11000 110,000 € 99,000 € 209,000 € 220,000 €
12000 110,000 € 108,000 € 218,000 € 240,000 €
Table 2 - Breakeven Analysis calculation
c) New selling price = 20 *
02
100
= 2
= 20 – 2
= €18
Sales units =30,000 +3000
= 33,000 units
=
270,000
33,000
= 8.1
= 18- 8.1
= 9.9
BEP (Units) =
𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡 (𝐹𝐶)
𝑈𝑛𝑖𝑡 𝑐𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 (𝑈𝐶𝑀)
=
110,000
18−9.9
= 11,111 units

13. 13
d)
Break Even Point is a level that a company generates total revenue equal to its total expenditure
during an accounting period (My Accounting Course, 2017). The net income of the company
for the period will be zero because revenues equal expenses. Therefore the company will not
lose any money, and it also will not gain any money either, during the period.
Drawing 1 Break-even Point
BEP is where total cost and total revenue lines become equal. Any company operating in a
point below the BEP is having losses because the total cost is higher than the total revenue.
When the company reaches the BEP, it stops running at a loss because the total cost and the
total revenue become equal.When the number of units sold exceeds the BEP, there company
starts generating profits because the total revenue line is higher than the total cost line.
Advantages of BEP analysis
Indicates profits and losses at different sales and production levels.

14. 14
Helps to forecast the effects of changes in selling price (ToughNickel, 2017).
Effects of efficiency and cost changes on profitability can be forecasted.
Can analyze the correlation between variable and fixed costs (ToughNickel, 2017).
Helps to make decisions such as closing or continuation decisions, make-or- bu y
decisions, decisions on utilization of scarce resources and appraising opportuniti es
to enter contracts (McLaney and Atrill, 2015;344).
Helps to plan the production, maximizing the contribution towards profit and fixed costs.
(YourArticleLibrary, 2014).
Can be used to detect increases of costs that might not be noticed (YourArticleLibrary, 2014).
Explains the behaviour of profits in relation to output (YourArticleLibrary, 2014).
Helps to appraise the feasibility of investments (IB and Business, 2017).
Draw backs of BEP analysis
Assumes that the unit selling price is constant at all production levels. But practically it would
not happen.
Assumes production equals to sales. But it is not practical in the real world.
Can only be applied to a single product or single mix of products. (ToughNickel, 2017).
Assumes that variable costs change in direct proportion to sales volume changes. But they
don’t.
Assumes that productivity and technology remains constant, though they are subject to change
frequently.
Assumes that total variable cost and total revenue lines are perfectly straight when
plotted against volume of output. But it is unlikely in real life. (McLaney and Atrill,
2015; 340).
Assumes that total fixed costs remain constant over the relevant range. But most t yp e s of
fixed c o s t a r e no t fixed over the whole range of activity (McLaney and Atrill, 2015;
340).

15. 15
Bibliography
1. Business Knowledge S (2003) A comparison of top-down to bottom-up budgeting. Available
at:http://businessknowledgesource.com/finance/a_comparison_of_topdown_to_bottomup_bu
dgeting_024713.html (Accessed: 15 February 2017)
2. Florin, B. (2011) ‘BOTTOM-UP/TOP-DOWN BUDGETING’, Braşov: The 6th International Scientific
Conference ‘DEFENSE RESOURCES MANAGEMENT IN THE 21st CENTURY’. pp. 160–164.
3. IB, A. and Business, A. (2017). Break even analysis. [online] Getrevising.co.uk. Available at:
https://getrevising.co.uk/grids/break_even_analysis_2 [Accessed 15 Feb. 2017].
4. Kaplan Financial Limited. (2012) ACCAPEDIA. Available at:http://kfknowledgebank.kaplan.co.uk/
KFKB/Wiki%20Pages/Top%20down%20and%20Bottom%20up%20Budgeting.aspx (Accessed: 12
February 2017).
5. McLaney, E. and Atrill, P. (2015) Accounting and finance: An introduction 8th edition. Pearson.
6. My Accounting Course. (2017). Break Even Point - Definition | Meaning | Example. [online]
Available at: http://www.myaccountingcourse.com/accounting-dictionary/break-even-point
[Accessed 14 Feb. 2017].
7. ToughNickel.(2017). Disadvantagesand Advantagesof Break-Even Analysis.[online]Availableat:
https://toughnickel.com/business/Breakeven-analysis [Accessed 14 Feb. 2017].
8. Woolley, D. (2014) Top down or bottom up budgeting – which approach is best? Available at:
https://www.trinityp3.com/2014/02/top-down-or-bottom-up-budgeting/(Accessed:11February
2017).
9. YourArticle Library(2014) Benefitsand limitationsof break-evenanalysis|Financialmanagement.
Available at:http://www.yourarticlelibrary.com/financial-management/benefits-and-limitations-
of-break-even-analysis-financial-management/29421/ (Accessed: 15 February 2017).