Master of Business Administration (MBA)/ Master of Business

Administration (Online) MBA(OL) / Master of Business

Administration
(Banking and Finance) (MBF)/ Master of Business
Administration(Financial Management) (MBAFM)/ )/ Master of
Business Administration(Human Resource Management)
(MBAHM)/
Master of Business Administration(Marketing Management)
(MBAMM)
Master of Business Administration(Operations Management)
(MBAOM)Post Graduate Diploma in Financial Management
(PGDIFM)
ASSIGNMENT
For
July 2024 and January 2025 Sessions

What are the objectives of preparing Financial Statements?

Describe the basic concepts of income determination.

Introduction

Financial statements serve as a vital tool in conveying a company’s

financial health and operational success to various stakeholders, including
investors, creditors, regulators, and management. The primary objectives
of preparing financial statements are to provide an accurate, timely, and
transparent representation of the financial activities of an organization.
These statements, which include the balance sheet, income statement,
and cash flow statement, are essential for assessing profitability, liquidity,
solvency, and financial flexibility.

One key objective is to enable stakeholders to make informed economic

decisions. By analyzing financial statements, investors can assess whether
a company is generating adequate returns and whether it is a suitable
investment opportunity. Creditors, on the other hand, examine these
documents to evaluate the company’s ability to meet its debt obligations.
Additionally, financial statements provide a basis for taxation, and
regulatory bodies use them to ensure compliance with industry norms and
standards.

In essence, financial statements are designed to present a true and fair

view of an organization’s financial performance and position. They
promote accountability, provide insight into operational efficiency, and
facilitate comparison with other firms, ensuring that all stakeholders have
a clear understanding of the company’s financial standing.

Concepts of Income Determination

Income determination is one of the central aspects of financial accounting,
focusing on how a company calculates and reports its earnings over a
specific period. The income statement, which details revenues, expenses,
gains, and losses, is key to understanding the financial performance of a
business. Several basic concepts underlie the determination of income,
ensuring that the process is systematic and reflects the true earning
capacity of an organization.

1. Accrual Basis Accounting

Income determination follows the accrual basis of accounting, which

requires that revenues and expenses be recorded when they are earned or
incurred, regardless of when the cash is received or paid. This principle
ensures that the financial statements provide a complete and accurate
picture of the company’s performance over a given period. For example,
revenue is recognized when goods are delivered or services rendered,
even if payment is received later. Similarly, expenses are recorded when
incurred, not when the company pays for them.

2. Revenue Recognition Principle

This principle dictates the conditions under which revenue is recognized.

For income determination, revenue is recognized when a performance
obligation is satisfied, meaning the company has delivered goods or
services, and the customer has assumed control. The revenue recognition
process involves identifying contracts with customers, determining
performance obligations, setting transaction prices, and recognizing
revenue as these obligations are fulfilled.

The matching principle aligns with the revenue recognition principle. It

requires that expenses incurred in generating revenue be matched with
the revenue recognized during the same period. This concept ensures that
income determination accurately reflects the costs associated with
producing revenue.

3. Realization and Matching Concepts

The realization concept underlines that income should be recognized

when it is reasonably certain that economic benefits will flow into the
entity. Income is not recorded simply based on the execution of contracts
or delivery of goods, but upon the receipt of payment or a guaranteed
claim to it.

The matching concept ensures that expenses incurred in generating

income during a given period are recognized in the same period as the
income. For example, if sales are made in December, but the payment for
goods sold is received in January, both the sale and the cost of goods sold
are recorded in December’s income statement to correctly reflect the
profitability of that period.

4. Conservatism Principle

The conservatism principle advises that uncertainty in income

determination should be treated cautiously. This means that potential
losses are recognized immediately, while revenues are only recorded
when they are assured. This principle helps prevent the overstatement of
income and the understatement of liabilities, maintaining a conservative
approach to financial reporting. It ensures that financial statements do not
give an overly optimistic view of the company’s profitability, thereby
protecting the interests of stakeholders.

5. Historical Cost Concept

Income determination is also affected by the historical cost concept, which

states that assets and expenses should be recorded at their original
purchase prices. This principle is crucial for calculating depreciation and
amortization expenses, which affect the determination of net income.
Depreciation represents the gradual reduction in the value of tangible
fixed assets over time, while amortization applies to intangible assets.
These expenses are matched against revenues generated during the
period, influencing the final income figure.

6. Materiality

Materiality refers to the significance of financial information in the

decision-making process. For income determination, this concept implies
that only information that can influence the decisions of stakeholders
should be reported in financial statements. For example, a minor expense
that does not significantly impact the income statement might be omitted
or aggregated with similar items. This ensures that the financial
statements remain relevant and focused on key financial activities.

7. Consistency and Comparability

For accurate income determination, accounting methods and principles

should be applied consistently across periods. Consistency allows for
meaningful comparison of financial statements over time. The
comparability concept extends beyond consistency within a single firm,
enabling stakeholders to compare financial results with other firms in the
same industry. This ensures that income determination provides insights
into both the company’s performance and its standing in the market.

Conclusion
The accurate determination of income is critical for providing a clear,
reliable representation of a company’s financial health. By adhering to key
concepts such as accrual accounting, revenue recognition, matching, and
conservatism, financial statements can present an accurate portrayal of
how much profit or loss a company has generated over a specific period.
These principles ensure that income determination is both consistent and
comparable, offering stakeholders valuable insights into a company’s
profitability, financial performance, and future prospects.

Ultimately, the preparation of financial statements serves a multifaceted

purpose—helping investors make informed decisions, allowing
management to assess operational efficiency, and ensuring compliance
with regulatory requirements. The fundamental concepts guiding income
determination ensure that the process is methodical and reflective of the
true earning capacity of an organization, contributing to the financial
integrity and transparency expected in the business environment.

In context of Cash Flow Statement, what is cash and cash

equivalent? In what categories cash flows are classified and
explain how cash flow in each activity is calculated as per AS-3.
Describe how cash flow statement is prepared under Direct
Method.

Cash and Cash Equivalents in the Context of the Cash Flow

Statement

In the context of the Cash Flow Statement, cash refers to currency on

hand as well as demand deposits that are readily available for use by the
business. Cash equivalents are short-term, highly liquid investments
that are readily convertible to known amounts of cash and have a
maturity period of three months or less from the date of acquisition.
Examples of cash equivalents include treasury bills, commercial paper,
and money market funds.

Cash and cash equivalents are critical for assessing the liquidity and
financial flexibility of an entity. They represent the most liquid assets, and
their management is crucial for maintaining a company’s solvency.

Categories of Cash Flows as per AS-3

According to Accounting Standard (AS) 3, cash flows are classified into

three categories:

1. Operating Activities

2. Investing Activities

3. Financing Activities
1. Operating Activities

Operating activities include the principal revenue-generating activities of

the enterprise and other activities that are not investing or financing
activities. Cash flow from operating activities includes cash receipts from
the sale of goods or services and cash payments to suppliers and
employees. It also includes other operating receipts and payments, such
as royalties, fees, commissions, and other income. The calculation of cash
flow from operating activities can be done using either the direct or
indirect method.

 Direct Method: Cash receipts from customers minus cash

payments to suppliers and employees.

 Indirect Method: Starts with the net profit or loss and adjusts for
non-cash transactions (e.g., depreciation, changes in working
capital).

Examples of cash flows from operating activities:

 Cash receipts from the sale of goods and services.

 Cash payments to suppliers of goods and services.

 Cash payments to employees.

2. Investing Activities

Investing activities represent cash flows related to the acquisition and

disposal of long-term assets and investments. These activities primarily
involve cash outflows for the purchase of assets, and inflows from the sale
of assets, including property, plant, equipment, and financial instruments.

The cash flow from investing activities is calculated as:

 Cash inflows from the sale of assets minus cash outflows for the
purchase of assets.

Examples of cash flows from investing activities:

 Purchase of property, plant, and equipment (cash outflow).

 Proceeds from the sale of an asset (cash inflow).

 Purchase or sale of investments in subsidiaries or other companies.

3. Financing Activities

Financing activities include cash flows that result in changes in the size
and composition of the equity capital and borrowings of the entity. This
category involves raising or repaying capital through equity, debt
instruments, and dividends.
The cash flow from financing activities is calculated as:

 Cash inflows from borrowing or issuing equity minus cash outflows

from repaying borrowings and paying dividends.

Examples of cash flows from financing activities:

 Issuance of shares or bonds (cash inflow).

 Repayment of loans or redemption of bonds (cash outflow).

 Payment of dividends to shareholders (cash outflow).

Preparation of Cash Flow Statement under Direct Method

The Direct Method of preparing the cash flow statement involves

reporting major classes of gross cash receipts and payments. This method
provides a clear picture of the actual cash inflows and outflows during the
period and is often considered more transparent and easier to understand
compared to the indirect method.

Steps for preparing the cash flow statement using the direct method:

1. Cash Flows from Operating Activities:

 Cash Receipts from Customers: This is the total cash

received from sales or services. To calculate this, adjust
revenue for the change in accounts receivable.

 Cash Payments to Suppliers: This represents cash paid for

goods or services. Adjust the cost of goods sold for changes in
accounts payable and inventory.

 Cash Payments to Employees: This is the total cash paid to

employees, including wages and salaries.

 Other Operating Cash Receipts/Payments: These include

items like cash paid for rent, utilities, and other operating
expenses.

Example:

 Cash receipts from customers = Revenue + Decrease in

Accounts Receivable or – Increase in Accounts Receivable.

 Cash payments to suppliers = Cost of Goods Sold + Increase

in Inventory – Decrease in Inventory + Decrease in Accounts
Payable or – Increase in Accounts Payable.

2. Cash Flows from Investing Activities:

  Report cash spent on the acquisition of assets like property,
plant, and equipment (cash outflow).

 Report cash received from the sale of assets (cash inflow).

Example:

 Purchase of a building = Outflow.

 Sale of equipment = Inflow.

3. Cash Flows from Financing Activities:

 Record cash inflows from issuing shares or obtaining loans.

 Record cash outflows from paying dividends or repaying loans.

Example:

 Proceeds from a loan = Inflow.

 Payment of dividends = Outflow.

Example of Cash Flow Statement (Direct Method)

Cash Flows from Operating Activities:

 Cash receipts from customers: $500,000

 Cash payments to suppliers: ($200,000)

 Cash payments to employees: ($100,000)

 Other operating expenses: ($50,000)

 Net cash from operating activities: $150,000

Cash Flows from Investing Activities:

 Purchase of equipment: ($50,000)

 Proceeds from the sale of investments: $10,000

 Net cash used in investing activities: ($40,000)

Cash Flows from Financing Activities:

 Proceeds from issuing shares: $100,000

 Repayment of loans: ($30,000)

 Dividends paid: ($20,000)

 Net cash from financing activities: $50,000

Net Increase in Cash and Cash Equivalents:

  Net cash from operating activities: $150,000

 Net cash used in investing activities: ($40,000)

 Net cash from financing activities: $50,000

 Net increase in cash and cash equivalents: $160,000

This example illustrates how cash flows are classified into operating,
investing, and financing activities, providing a clear and concise view of a
company’s cash position. The Direct Method shows specific cash inflows
and outflows, helping stakeholders analyze a company’s cash-generating
ability more effectively.

What is an Annual Report? Discuss in brief the contents of an

annual report and describe the non audited information contained
in an Annual Report of any company.

Annual Report

An Annual Report is a comprehensive document prepared by a company

at the end of each fiscal year, providing a detailed overview of its financial
performance, operational activities, and future strategies. It is primarily
intended for shareholders, investors, and other stakeholders, serving as
an important tool for assessing the company’s overall financial health,
management effectiveness, and market position. The report not only
contains audited financial statements but also includes management’s
analysis, operational highlights, and non-financial disclosures that give
insight into the company’s vision, strategy, and governance.

The annual report typically serves multiple purposes:

1. Informing shareholders about the company’s performance over

the past year.

2. Providing transparency into the financial health and

management of the organization.

3. Enhancing trust among investors, creditors, and the general

public.

4. Meeting statutory requirements under corporate governance

regulations.

Contents of an Annual Report

The contents of an annual report are broadly classified into two

categories: Audited Financial Information and Non-Audited
Information. Here’s a brief overview of the common sections included in
most annual reports:
1. Chairman’s Letter/Message:

This is a formal address from the Chairman of the Board or the CEO. It
provides a personal narrative that outlines the company’s major
accomplishments during the year, challenges faced, strategic goals, and
future outlook. This letter sets the tone for the rest of the report.

2. Financial Highlights:

This section presents a summary of key financial metrics, such as

revenue, net income, earnings per share (EPS), and dividends. It gives a
quick snapshot of the company’s financial performance over the past
year, often with comparative data from previous years.

3. Management’s Discussion and Analysis (MD&A):

The MD&A is a critical section where management discusses the financial

results in detail, explaining the factors that influenced performance. It
includes:

 A review of operational results and financial performance.

 An analysis of market trends, risks, and future challenges.

 Discussion on liquidity, capital resources, and any changes in

accounting policies.

4. Audited Financial Statements:

This section includes detailed financial statements, verified by external

auditors:

 Balance Sheet: A statement showing the company’s assets,

liabilities, and shareholders’ equity.

 Income Statement (Profit and Loss Account): Reflecting the

company’s revenues, expenses, and profits for the year.

 Cash Flow Statement: Outlining cash inflows and outflows from

operating, investing, and financing activities.

 Statement of Changes in Equity: Explaining changes in equity

components like share capital and retained earnings.

5. Notes to the Financial Statements:

This section provides additional explanations and disclosures on the items

mentioned in the financial statements. These notes help stakeholders
understand the accounting policies, assumptions, and any special events
that occurred during the reporting period.

Non-Audited Information in an Annual Report

Beyond the audited financial statements, an annual report contains
significant non-audited information. This section provides valuable
context, non-financial insights, and additional disclosures that help
stakeholders understand the company’s broader strategy, risk
management, and corporate responsibility efforts. Some examples of non-
audited information include:

1. Company Overview and Business Strategy:

This section provides a detailed description of the company’s business

model, industry, product lines, and markets. It outlines the company’s
vision, mission, and strategic objectives. Companies use this section to
communicate how they plan to sustain or enhance profitability and
competitive position.

2. Corporate Governance Report:

This is an important section that outlines the company’s governance

structure, board composition, and the roles of its committees (e.g., Audit,
Remuneration, and Nomination Committees). It may also describe
compliance with regulatory requirements like the Sarbanes-Oxley Act or
corporate governance codes. The goal is to show that the company
follows best practices in governance and accountability.

3. Corporate Social Responsibility (CSR) Initiatives:

Many companies include a CSR section, highlighting efforts toward

sustainability, community development, environmental protection, and
employee welfare. This section is often used to build goodwill among
stakeholders by showcasing the company’s commitment to ethical
business practices and social responsibility.

4. Risk Management Report:

This section discusses the key risks faced by the company (e.g., market
risks, operational risks, regulatory risks) and the strategies in place to
mitigate them. The risk management report offers transparency about
potential threats and how the company intends to handle them.

5. Employee and Management Information:

Many annual reports provide insights into the company’s human resources
strategy, employee development programs, and leadership structure. This
could include details on employee engagement, diversity initiatives, and
training programs.

6. Shareholder Information:
This section includes details such as the number of outstanding shares,
shareholding patterns, market performance of the stock, and dividend
policy. Information on the Annual General Meeting (AGM) and how
shareholders can participate is also presented.

Example of Non-Audited Information from a Company’s Annual

Report

Let’s consider the annual report of Apple Inc. to describe non-audited

information:

1. Company Overview: Apple’s annual report typically includes a

detailed description of its product lines, such as iPhones, iPads,
Macs, and services like iCloud and Apple Music. The company
outlines its innovation strategy and how it plans to sustain its
market leadership through research and development.

2. CEO’s Message: In this section, the CEO discusses Apple’s vision

for the future, emphasizing key areas of focus such as innovation,
sustainability, and customer experience. For example, Apple often
highlights its commitment to renewable energy and reducing carbon
emissions in this section.

3. Corporate Governance: Apple provides a detailed description of

its governance framework, including board composition, the role of
committees, and the qualifications of board members. This section
assures shareholders that the company is managed with integrity
and transparency.

4. Environmental and Social Responsibility: Apple frequently

highlights its sustainability initiatives, such as using recycled
materials in its products and reducing its carbon footprint. The
company also discusses its ethical sourcing of materials and
contributions to various social causes.

5. Risk Factors: Apple lists potential risks, such as technological

disruptions, cybersecurity threats, and changing market dynamics.
The report describes how Apple manages these risks through
innovation, diversification, and stringent security protocols.

Conclusion

An annual report is a comprehensive tool for communicating a company’s

financial performance, governance structure, and future strategies to
stakeholders. While the audited financial statements provide a factual
representation of the company’s financial position, the non-audited
information offers broader insights into the company’s business
operations, risks, and social commitments. This blend of financial and non-
financial information helps stakeholders make informed decisions about
the company’s long-term prospects. Non-audited sections such as the
Chairman’s message, corporate governance report, and sustainability
initiatives provide valuable context and demonstrate the company’s
vision, ethical stance, and strategic outlook, enhancing transparency and
trust with stakeholders.

What is Human Resource Accounting? How can it be used as a

decision tool by Management?

Human Resource Accounting

Human Resource Accounting (HRA) refers to the process of

identifying, measuring, and reporting the value of a company’s human
resources. It recognizes that employees, much like physical and financial
assets, contribute to the profitability and productivity of an organization.
The concept of HRA is based on the idea that human capital (the skills,
knowledge, and experience of employees) represents a vital, yet
intangible asset that should be accounted for in financial statements or
managerial reports.

HRA aims to quantify the value of human resources in financial terms,

thereby allowing companies to manage their human assets more
effectively. Traditional accounting systems focus only on physical and
financial assets, neglecting human capital. HRA fills this gap by providing
management with information on the investment made in human
resources (such as training, recruitment, and development) and the value
they create for the organization over time.

HRA can be broken down into two aspects:

1. Cost of Human Resources: This includes the costs associated with

recruiting, training, and developing employees, as well as wages
and benefits.

2. Value of Human Resources: This refers to the economic value

employees generate through their work, productivity, and
innovation.

How Can HRA Be Used as a Decision Tool by Management?

Human Resource Accounting provides crucial insights that can help

management make informed decisions about human capital investments,
workforce optimization, and long-term strategy. Here’s how HRA can be
used as a decision tool:

1. Employee Investment Decisions

HRA helps managers evaluate the return on investment (ROI) of
employee-related expenditures, such as recruitment, training, and
development programs. By quantifying the cost and benefits of these
investments, management can decide whether they are justified or if
alternative strategies should be adopted. For example, if the cost of
training employees significantly exceeds the value they add to the
organization, the management might reconsider their training strategy.

2. Workforce Planning and Allocation

By measuring the value of human resources, HRA assists in workforce

planning. Management can identify the departments or roles where
human resources are underutilized or where more investment is required.
For instance, HRA can reveal which employees or teams contribute the
most value, helping management allocate resources more efficiently,
optimize workforce productivity, and eliminate inefficiencies.

3. Performance Measurement

HRA provides a framework for assessing employee performance not only

in terms of output but also in terms of their overall contribution to the
organization’s value. This allows management to make more informed
decisions regarding promotions, compensations, or employee retention.
High-value employees identified through HRA might be prioritized for
leadership roles or succession planning.

4. Cost-Benefit Analysis for Outsourcing and Automation

HRA allows management to perform a cost-benefit analysis when deciding

whether to retain human employees or to outsource certain functions. By
comparing the cost of hiring and maintaining employees with the cost of
outsourcing or automating a function, management can decide on the
most cost-effective strategy.

5. Strategic HR Decisions

HRA data can influence long-term strategic decisions, such as whether to

expand or contract the workforce, enter new markets, or invest in specific
employee skills. For instance, if HRA reveals that highly skilled workers are
a key competitive advantage, management may decide to focus on
employee retention and training programs, or on recruiting top talent to
drive innovation.

6. Risk Management

HRA helps in identifying potential risks related to the loss of key

employees or skills. By measuring the value and contribution of each
employee, management can pinpoint areas where the organization is
overly reliant on a small number of individuals. This allows for better
succession planning and the mitigation of risks associated with employee
turnover.

7. Employee Retention and Engagement

HRA offers insights into which employees are adding significant value to
the company. Management can use this information to develop targeted
retention strategies, ensuring that high-value employees remain engaged
and loyal to the company. Additionally, understanding the costs
associated with replacing skilled employees can prompt management to
invest more in employee engagement and satisfaction initiatives.

8. Mergers and Acquisitions

In the case of mergers or acquisitions, HRA plays a key role in evaluating

the human capital of the target company. The value of employees, their
skill sets, and their potential contribution to the merged entity can
influence the final decision on the acquisition price. Furthermore, HRA
helps in assessing cultural compatibility and potential integration
challenges.

9. Budgeting and Forecasting

HRA data can be used in budgeting and forecasting processes. By

understanding the value of human resources and how they contribute to
the overall business, management can create more accurate forecasts
related to productivity, revenue generation, and employee costs.

10. Improved Decision-Making on Training and Development

Management can use HRA to identify skill gaps and determine the
effectiveness of training programs. By tracking the cost of training and the
subsequent improvement in employee performance, managers can decide
which programs offer the best return on investment and focus resources
accordingly.

Conclusion

Human Resource Accounting offers a comprehensive framework for

evaluating human capital, allowing management to make more informed
decisions regarding workforce investments, employee performance, and
long-term strategic planning. By quantifying the value of human resources
and the cost of managing them, HRA helps management optimize talent
utilization, improve employee engagement, and enhance overall
productivity. As businesses increasingly recognize the importance of their
human capital, HRA is becoming an essential tool for managing
employees as valuable assets rather than mere costs. This data-driven
approach to human resource management ensures that companies can
remain competitive in a dynamic business environment by effectively
managing their most important asset – their people.

A) Compute Profit when – Sales Rs.4,00,000 Fixed Cost Rs. 80,000

BEP Rs. 3,20,000 (intro – 100 words , solution in a chart format
with definitions of key concepts and conclusion 100 words)

Introduction

Profit is a key financial metric used to measure a company’s ability to

generate earnings from its operations. It is calculated by subtracting total
costs from total revenue. In the given problem, we are asked to compute
the profit based on sales, fixed costs, and break-even point (BEP).
The Break-Even Point (BEP) is the level of sales at which total revenue
equals total costs, resulting in neither profit nor loss. The formula used to
calculate profit takes into account the sales amount, fixed costs, and the
contribution margin.

Solution with Definitions

Key Calculatio
Definition Value/Formula Result
Concept n

Total revenue generated

4,00,0
Sales (Rs.) from the sale of goods Given –
00
or services.

Costs that remain

Fixed Costs constant regardless of
Given – 80,000
(Rs.) the level of production
or sales.

The point at which total BEP = Fixed

BEP (Break- revenue equals total Costs / 3,20,0
Given
Even Point) costs, resulting in no Contribution 00
profit or loss. Margin Ratio

The amount of sales

Contributio revenue left after
4,00,000 –
n Margin covering variable costs, Sales – BEP 80,000
3,20,000
(Rs.) contributing to covering
fixed costs and profit.
 Key Calculatio
Definition Value/Formula Result
Concept n

The surplus remaining

Contribution
after all costs have 80,000 –
Profit (Rs.) Margin – Fixed 0
been deducted from 80,000
Costs
sales revenue.

Conclusion

In this case, the computed profit is Rs. 0, indicating that the company is
operating at its break-even point, where sales just cover the total fixed
costs. No surplus exists to generate profit, meaning the business must
increase sales beyond the break-even point to start earning a profit.
Understanding this helps companies strategically plan for increased
revenues and profits.

Compute Sales When – Fixed Cost Rs.40,000 Profit Rs. 20,000 BEP
Rs. 80,000 – same above format

Introduction

Sales refer to the total revenue generated from the sale of goods or
services. In this problem, we are tasked with calculating the sales needed
to achieve a given level of profit while considering the fixed costs and
break-even point (BEP). The Break-Even Point (BEP) is where total
revenue equals total costs, resulting in no profit or loss. The relationship
between fixed costs, profit, and sales is essential to determining the
necessary sales to meet profit targets.

Solution with Definitions

Key Value/ Calculati

Definition Result
Concept Formula on

Costs that remain

Fixed constant
Costs regardless of Given – 40,000
(Rs.) production or sales
levels.

Profit The financial gain Given – 20,000

(Rs.) after deducting
total costs from
 Key Value/ Calculati
Definition Result
Concept Formula on

total revenue.

The level of sales

BEP
at which total
(Break-
revenue equals Given – 80,000
Even
total costs (no
Point)
profit or loss).

The portion of
sales revenue that
Contributi
contributes to BEP – Fixed 80,000 –
on Margin 40,000
covering fixed Costs 40,000
(Rs.)
costs and
generating profit.

The total sales

required to cover Sales = Fixed
Required 40,000 +
fixed costs and Costs + Profit + 1,00,0
Sales 20,000 +
achieve the Contribution 00
(Rs.) 40,000
desired profit Margin
level.

Conclusion

To achieve a profit of Rs. 20,000, the company needs to generate Rs.

1,00,000 in sales. This figure is derived by adding the fixed costs, the
desired profit, and the contribution margin required to break even.
Understanding this relationship helps businesses set sales targets to meet
profitability goals.