Discussion on Financial costing

Summarize the concept of business

Ans. the business which is going to start to hold a lemonade stand in the market. Weather is going to change and the demand for healthy and cold drinks is rapidly increasing. So according to our research. Lemonade selling is considering very effective and beneficial in the summer season. People prefer to take fresh juices and lemonade is one of the best and refreshing drink use in the summer season. This business is not costly as it required less material and efforts and with a small team, it can run successfully according to earning point of view. So, it is very beneficial to run an initial business at a small level and then expand with the time and after getting some experience.

Identify the line items

Ans. basic items included in this business are its sale, its lemon cost, its booth cost, sugar used in making the lemonade and salaries of all those people who are working on booths. the selection of the sale price of lemonade is selected because there is already tough competition in this business and many other booths also selling the same juice in different ways so for attracting the customers it is necessary to minimize the cost of lemonade. The sale price also set according to all the costs that business has to incur and cover from its sale.

Estimate the amount of each line item

Ans.  Every amount of costs and sales is set according to market research and determine how minimum the company has to face costs and expenses. So it affects the scope of business and also makes determine how much the company going to earn its profit by selling its products.  Lemon cost is determined according to its usage and also the cost of sugar. so according to their usage, these costs determine and they act as variable costs of the company. The rent of booths and salaries of all the team members must be given in any situation. And they do not belong to the profitability of the business. even in a loss, the business has to face its fixed costs and rent and salaries are part of fixed costs. The business has to pay its variable and fixed costs according to its utilization and manage its profitability by paying its all expenses.

Create a variable cost income statement for each month

Ans. the variable cost of the income statement of three months:

 This income statement explains that variable cost can be changed according to units of sales but its fixed cost remains the same. And business has to face this in any case.

Break-even analysis:

Ans. breakeven is the most important part of the accounting of profit of the business. it explains the condition of business where all the cost of the company equals the revenue of the company and the company never gains any profit. So it means when the company obtains no profit and its all revenue covers its all costs then the condition of the company explains as break-even and study of this situation known as a break-even analysis.

CVP analysis also helps the business to explain that what is the cost and its volume affect its profitability and also affect its operating expenses. According to fixed and variable costs, sales volume and price, how the profit of the company is going to alter. In accounting and managerial finance, this is the most effective tool that determines all the parts of its production and sale area and determines the accurate result. This also helps managers to make a better decision about the company and its performance.