Definition of Financial Terms

Accounting Essay on Break-Even Analysis and Planning

Break-Even Analysis and Planning

The budget preparation procedure ought to be planned in a skillfully manner to include all the likely costs as well as income that the company is to obtain so as to avert cases of shortages and severe surplus in the final budget (Sinclair, 1934, p.102).

In addition, the set budget ought to be adjustable to permit consistent addition and extractions that may come up in the monetary interest of the organization. The flexibility in budget will as well let inclusion of the adjusting circumstances. Absorption budgeting is frequently favored by majority of the companies as it allows for flexibility in the productivity procedure. Under this tactic of budgeting, the expenses suffered in the production operations of the company are considered (Peterson & Fabozzi, 2002, p.201). Among the expenses that will be playing an essential part in the absorption budgeting are direct labor, managerial expenses, cost variables as well as direct material costs. The future requisites of these variables must be planned and incorporated in the budget. In the same way, the revenue and the realized income of the company will differ with the levels of production under absorption budgeting; thus improve more adjustability of the budget.

Numerous companies have taken on absorption budgeting due to its flexibility as well as the easiness of its application. Nokia Company has accomplished an assortment of objectives because of its operational budgeting program that have frequently shown the real monetary requisite the company. This has let the company to effortlessly equate the growth over the year as the general sales are ably looked at, as well as improved tactics are planned to raise the sales levels. 

The Budget of Nokia Company over a period of three years as from 2011 – 2013        

INCOMEYear 2011Year 2012Year 2013
      Sales$ 50,000$ 35,700$ 52,800
       Interest Income$ 1000$ 1200$ 800
TOTAL INCOME$ 60,000$ 36,900$ 53,600
EXPENSES
        Salaries$ 20,000$ 12,000$ 21,000
        Promotional activities$ 1000$ 800$ 1100
         Delivery programs$ 2,000$ 1,200$ 2100
         Rent$ 1000$ 1000$ 1000
       Raw materials$ 3,000$2500$ 3200
       Repairs$ 700$ 300$450
       Taxation$ 650$650$ 650
      Branding costs$ 540$ 510$640
        Equipments$ 900$765$ 950
TOTAL EXPENSES$ 29,790$ 19,725$ 31,090
NET INCOME$ 30,210$17,175$ 22,510

 

 

Additional information

The corporation uses stakes as one of the units of capital for the running of the firm. In the duration of 2011 – 2013 the corporation that some exceptional shares as illustrated in the table below.

201120122013
$ 2000$1500$ 1850

Gross Profit = Total Revenue – Total Expenses.

The overall development rate of the Nokia company can determined from the budget through the use of Earnings per share.

EPS = Net Income/Outstanding shares

EPS (2011) = 30,210/ 2000 =15.105

EPS (2012) = 17,175/1500 = 11.45

EPS (2013) = 22,510/1850 = 12.16

The corporation has no stable development rate; these can be because of numerous economic factors in the sector. Among the facets that can lead into this unstable development revealed is altering the value of the currency because of cases of persistent inflationary impacts. The development of the Nokia Company can be demonstration of the progress rate of the sector because of same economic characteristics.

 

The Sales growth rate for the company over the threes is as follows:

2011:  $ 50,000           Sales G.R for the 2011-2012

50,000-35,700=14,300/50,000

(28.6% ) A reduction in sales.

2012:  $ 35,700           Period of 2012-2013

52,800 – 35,700 = 17,100/35,700

47.9% Increment in the sales volume.

2013:  $ 52,800

The transactions echelons of the firm have consistently changed over the years in the subjected numbers because of alterations that equate the last sales amount. The anticipated sales in 2012 fell because of a decrease in the amount for modernization and amount set for marketing undertakings. Marketing activities surge the general sales intensities as alertness is improved via the marketing adventures. Moreover, marketing undertakings will surge the public image of the corporation that will, thus, lead to better sales amount. This expounds on the upsurge in the sales increase rate on 2013.

The current growth rate of the company

Growth rate for the company can be represented by the current EPS of the company.

EPS = Net Income/ Outstanding shares

22,510/1850 = 12.16.

The frequency at which the firm’s returns rises is consistent to the alteration in the costs. Various expenses experienced by the company are in an effort to surge the output volumes of the company that openly impacts the sales amount obtained. Costs, such as distribution expenses, openly impact complete sales obtained, hence leading to comparison in the increase of the changes. Nevertheless, at early stages of the organization, higher expenses are at all times displayed in endeavoring to be strong in the market (Nelson, 2005, p. 200). These chiefly led to lower earnings that the company obtained in a number of years; on the other hand, these expenses have lessened over the years as the company has become stronger in various markets.

As a result of improved technology, the economy has seen massive development with Nokia Company 30% sales upsurge sales increase in the year 2013. This has as well improved the running of rivalry companies like apple and Samsung that have noticed improved sales amount of the years. Improvements have been essential in the sector as the companies work has to surpass chief rivals via latest improvements (Peterson & Fabozzi, 2002, p. 209).

Owing to inflation in the industry, interest levels have surged significantly thus restricting the accumulation of funds by the company. The inflation circumstance has led to surged tax requisite by legal companies hence triggering running burden in the sector.

Budgets can be either adjustable or static in nature; static budgets epitomize a solitary activity of a company where adjustable action can be utilized to show a various activities in a particular duration. In the same way, in static budget, the yield does not alter with adjustments in differing expenses of the company; this varies with adjustable budget that includes alterations in the production levels in changing variables of the company (Nelson, 2005, p. 302).

Budget plays an important role in the organization as well as restriction in the company. Via budgeting, the monetary plans of the firm are easily accomplished as the plans are utilized as guiding principles in the undertakings. In addition, it consents for the restriction of numerous assets of the company as the accessible assets are expected to cover certain output times.  This in addition improves the liability as the undertaking is consistently analyzed so as to guarantee adaptation with the anticipated objectives and statistics.

References

Nelson, R. (2005). Windy. Minneapolis: Lerner Publications Co.

Peterson, P. P., & Fabozzi, F. J. (2002). Capital Budgeting: Theory and Practice. Hoboken: John Wiley & Sons.

Sinclair, P. (1934). Budgeting. New York: Ronald Press Co.

 

 

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