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Civil Engineering - Memorandum

Nexus Infrastructure, an Australian civil engineering company has $1,000,000 capital which needs to be allocated. Now the memo is designed in a manner which can revive and recover the company post the corona virus effects on the business because of the lockdown in Australia to curb the spread of the deadly disease.

1. Now since there is uncertainty of when will the situations get improved due to the corona virus so till then something needs to be done with the capital that the company has. So for this the company will take into consideration the opportunity cost. Opportunity cost refers to the cost which a person has to give up buying or purchasing some other goods or services which he needs (Accounting Tools, 2019). If the company has no where to invest then it should put the capital in a bank account as some sort of interest will be levied on the capital. This will eventually be a huge opportunity cost as some benefit will come out of it. But in case if investing the capital in the stock market which gives more higher rate of returns in the future then the company should choose that as the opportunity cost in this case will be higher (Yahoo Finance, 2019). They can even invest in mutual funds or in a fixed deposit which will yield them more returns in the future than keeping the capital deposited in a bank account. (Financial Express, 2020)

2. Due to the lockdown being implemented in the world to stop the spread of the corona virus the business sector has been deeply hit due to it. This has lead to huge amounts of losses which the companies have to bear due to the outbreak of the pandemic globally. Now with the help of the excess capital that the company has it can incentivise the investors after the covid-19 situation which can help in recovering the business. With the help of the excess capital the company can purchase bonds from the security market and sell it to the investors until a date of maturity. Now before the maturity period the company gives interest on the bonds sold to the investors which would directly give an incentive to the investors as in return they are receiving interest payments for the bonds (Investopedia, 2019). In addition to this they companies can also give more benefits of discounts of purchases done by investors in their houses and buildings if they buy as with the excess capital they can obviously expand their business forward. Moreover, the company can also increase the rate of return which the investors get as a part of the investments done by them into the company which would enable them to invest into the business directly.

3. Since the company is currently using the traditional based accountings, post the lockdown and to recover the company from the losses incurred during corona virus it should now resort to the advanced based accountings. Advanced based accountings will prove much advantageous for the company after Covid-19. Advanced based accountings recognize the entire particular overhead operations in relation to the producer of the products or goods (Chron, 2019). The difference between traditional and advanced based accountings can be explained by certain points:

  • Security: In traditional based accounting the data and facts of the company is not secured by all. Whereas in advanced based accounting the data and information of the company is secured by antivirus, anti-malware software’s etc.
  • Accessibility: In traditional based accounting the data and facts of the company are accessible only in the office premises. On the contrary, in advanced based accounting the data can be easily accessible at all the places by means of technology on the phones, laptops, personal computers, tablets etc.
  • Economical: In handling traditional based accounting it may cost higher as then the company may need to hire employees to manage the daily affairs whereas in advanced it may be economical as the company can manage the tasks via cloud. (The Biz Blog, 2018)

Thus with the above differences it is quite clear what advantages advanced based accountings have over traditional based accountings as it helps minimise the cost of the company and maximises the profit which makes it much more suitable and reliable.

4. Now the company is also trying to launch a product but both fixed and variable cost needs to be considered (Corporate Finance Institute, 2017). The difference between the two can be explained as:

Fixed cost

Variable cost

It is the total cost incurred by the company of the use of all fixed factors.

It is the total cost incurred by the company of the use of all the variable factors.

Also known as unavoidable cost, supplementary cost, overhead cost.

Also known as avoidable cost, prime cost and direct cost.

It is independent of the output produced & does not change with the quantity of output.

It is not independent of the output produced & does change with the quantity of output.

The curve of fixed cost is a straight line horizontal to the x axis with fixed cost and output on x and y axis respectively.

The curve of variable cost starts from the point of origin and increases with rise in output and reaches at maximum point when the target is achieved. It has variable cost on the x axis and output on the y axis.

It includes interest on capital invested by the investors, rent, insurance premium, wages and salaries of permanent employees and normal profits of the company.

It includes payment of raw material for construction, wages and salaries of temporary employees and casual workers, electricity charges, expenses incurred on transportation etc.

5. Now with each product there is uncertainty and risk involved that whether it will be successful or not. The company can be in a dilemma whether it will be profitable or not. For that break even is a good tool to answer such questions. Break-even point is that stage in a company where the revenues gained equals to the total cost incurred by the company. It is a point of no gains no loss (Lumen, 2017). Therefore, break-even point is helpful in planning how to make a product successful by determining the price at which profits will begin. It also helps in determining how to decrease the cost of the factors of production involved in producing the products. It helps in taking into account both the fixed and variable factors when launching a new product. Moreover when a new product or good is launched it also helps the producers or the firms to set the desired goals for the product by determining the units of the product or goods to be sold into the market to gain the desired profits for the company or to maximise the profits. In addition to this, it also enables the producer to plan the resources and the factors of production in such a way so that the new product gets maximum advantage of that and it gets to earn maximum amounts of revenues and profits for the company (Jhinghan, 2016).

References for Nexus Infrastructure

Accounting Tools. (2019). Opportunity cost definition. Retrieved from: https://www.accountingtools.com/articles/what-is-opportunity-cost.html

Chron. (2019). Traditional costing v/s activity- based costing. Retrieved from: https://smallbusiness.chron.com/traditional-costing-vs-activitybased-costing-33724.html#:~:text=Traditional%20costing%20adds%20an%20average,the%20manufacture%20of%20each%20product.

Corporate Finance Institute. (2017). Fixed and variable costs. Retrieved from: https://corporatefinanceinstitute.com/resources/knowledge/accounting/fixed-and-variable-costs/

Financial Express. (2020). What is opportunity cost and how it can help you take better investment decisions. https://www.financialexpress.com/money/what-is-opportunity-cost-and-how-it-can-help-you-take-better-investment-decisions/1827240/

Jhinghan, M. L. (2016). Micro economic theory. Delhi: Vrinda Publications.

Investopedia. (2019). Top two ways corporations raise capital. Retrieved from: https://www.investopedia.com/ask/answers/032515/what-are-different-ways-corporations-can-raise-capital.asp

Lumen. (2017). The break-even point. Retrieved from: https://courses.lumenlearning.com/wmopen-introbusiness/chapter/the-break-even-point-2/

The Biz Blog. (2018). The difference between traditional and modern accounting. Retrieved from: http://thebizblogs.com/difference-traditional-modern-accounting/

Yahoo Finance. (2019). How investors can avoid paying opportunity cost. Retrieved from: https://finance.yahoo.com/news/investors-avoid-paying-opportunity-cost-150838532.html

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Accounting and Finance Assignment Help

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