Inventory Days
1.
|
Cash cycle |
|||||
|
2017 |
2016 |
2015 |
2014 |
2013 |
|
|
Inventory Days |
61 |
68 |
70 |
67 |
68 |
|
Add: Collection Days |
46 |
40 |
37 |
36 |
36 |
|
Less: Payable Days |
55 |
52 |
56 |
60 |
57 |
|
Cash Cycle (Days) |
52 |
56 |
51 |
43 |
47 |
Workings:
|
Days Inventory Outstanding |
Average Inventory |
|
COGS /365 |
|
|
Days Receivables Outstanding |
Average Receivables |
|
Net sales /365 |
|
|
Days Payables Outstanding |
Average Payables |
|
COGS /365 |
|
Days Inventory Outstanding |
Average Inventory |
180148 |
193643.5 |
189528 |
173597 |
162848 |
|
|
COGS /365 |
2938.18 |
2856.42 |
2716.54 |
2582.07 |
2397.15 |
||
|
Days |
61 |
68 |
70 |
67 |
68 |
||
|
Days Receivables Outstanding |
Average Receivables/ Net sales/365 |
156104.5 |
131590.5 |
113084 |
105481.5 |
100035 |
|
|
3360.72 |
3276.62 |
3048.30 |
2929.84 |
2767.36 |
|||
|
Days |
46 |
40 |
37 |
36 |
36 |
||
|
Days Payables Outstanding |
Average Payables |
162684 |
147562.5 |
151616.5 |
154546 |
137695 |
|
|
COGS /365 |
2938.18 |
2856.42 |
2716.54 |
2582.07 |
2397.15 |
||
|
Days |
55 |
52 |
56 |
60 |
57 |
||
|
Year |
2017 |
2016 |
2015 |
2014 |
2013 |
2012 |
|
|
Inventory |
167898 |
192398 |
194889 |
184167 |
163027 |
162669 |
|
|
Receivables |
168536 |
143673 |
119508 |
106660 |
104303 |
95767 |
|
|
Payables |
169324 |
156044 |
139081 |
164152 |
144940 |
130450 |
|
|
COGS |
1072436 |
1042595 |
991538 |
942455 |
874961 |
||
|
Sales |
1226663 |
1195967 |
1112630 |
1069392 |
1010086 |
||
|
Average inventory |
180148 |
193643.5 |
189528 |
173597 |
162848 |
||
|
Average Receivables |
156104.5 |
131590.5 |
113084 |
105481.5 |
100035 |
||
|
Average Payables |
162684 |
147562.5 |
151616.5 |
154546 |
137695 |
|
$ 2,017.00 |
$ 2,016.00 |
Change |
Comment |
|
|
Overall Cash Flows |
||||
|
Cash flow from operating activities |
$ 57,074.00 |
$ 58,980.00 |
-$ 1,906.00 |
Decrease in cash inflow |
|
Cash flow from investing activities |
$ 151,257.00 |
-$ 39,634.00 |
$ 190,891.00 |
Increase in cash in flow |
|
Cash flow from financing activities |
$ 257,544.00 |
-$ 19,972.00 |
$ 277,516.00 |
Increase in cash in flow |
|
$ 468,875.00 |
-$ 626.00 |
$ 469,501.00 |
Increase in cash in flow |
|
|
Cash flow from operating activities |
||||
|
Receipts from customers |
$ 1,274,872.00 |
$ 1,241,063.00 |
$ 33,809.00 |
Increase in cash in flow |
|
Payment to suppliers |
$ 1,203,845.00 |
$ 1,174,917.00 |
$ 28,928.00 |
Increase in cash outflow |
|
Interest and other expenses |
$ 3,226.00 |
$ 3,835.00 |
-$ 609.00 |
Decrease in cash outflow |
|
Income Taxes |
$ 10,727.00 |
$ 3,331.00 |
$ 7,396.00 |
Increase in cash outflow |
|
Total |
$ 57,074.00 |
$ 58,980.00 |
-$ 1,906.00 |
Decrease in cash outflow |
The overall in cash flows of the Bega Cheese Limited have increased by $ 469501 in 2017 as a result of total inflow of cash in 2017 was $ 468875 and total cash flow of 2016 was -$626 i.e. the outflow of cash. This variation in overall cash flow of the company in last two reported years is due to the change in the cash flow from operating activities, investing activities and financing activities. There is a decrease in the cash inflow of operating activities of $ 1906 from 2017 to 2016. Further, there is a change of $ 190981 in respect of cash flow from investing activities from 2017 to 2016 and this change is on positive side i.e. the inflow of cash in 2017 has resulted in such a change. Moreover, there is change of $ 277516 in respect of financing activities from 2017 to 2016. This means that the firm has taken those investing and financing activities more which have contributed positively to its cash flows (Bhat, 2008).
Further, in respect of operating activities, cash flow from receipts from customers has increased in 2017 as compared to 2016 and have resulted an increase of cash inflow of $ 33809 in 2017 from 2016. Cash outflow from payment to creditors and payment of income tax has increased in 2017 as compared to 2016 and have resulted an increase of cash in out of $ 36324 in 2017 from 2016. However, there is a decline in the cash outflow in respect of interest expenses in 2017 and this has reduced the overall cash outflow from operating activities by $ 609 ( Bega Cheese, 2017).
2.
|
Existing System |
||
|
Selling Price per unit |
$ 420.00 |
|
|
Less: Variable Cost per unit |
||
|
Manufacturing cost |
$ 144.00 |
|
|
Selling and Administrative cost |
$ 36.00 |
$ 180.00 |
|
Contribution per unit |
$ 240.00 |
|
|
Total number of units sold |
5000 |
|
|
Total Contribution |
$ 1,200,000.00 |
|
|
Less: Fixed Cost |
||
|
Fixed manufacturing costs |
$ 460,000.00 |
|
|
Fixed selling and administrative costs |
$ 500,000.00 |
$ 960,000.00 |
|
Profit |
$ 240,000.00 |
|
|
Ist PROPOSAL |
||
|
Selling Price per unit |
$ 420.00 |
|
|
Number of units |
6500 |
|
|
Sales |
$ 2,730,000.00 |
|
|
Less Variable cost |
$ 1,352,000.00 |
|
|
Contribution |
$ 1,378,000.00 |
|
|
Less Fixed cost |
$ 990,000.00 |
|
|
Profit |
$ 388,000.00 |
|
|
Breakeven units |
Total Fixed Cost |
|
|
Contribution per unit |
||
|
$ 990,000.00 |
||
|
$ 212.00 |
||
|
Breakeven units |
4670 |
|
|
Breakeven units |
4670 |
72% |
|
Margin of Safety |
1830 |
28% |
|
Total Sales Units |
6500 |
100% |
|
2nd PROPOSAL |
||
|
Selling Price per unit |
$ 480.00 |
|
|
Number of units |
4500 |
|
|
Sales |
$ 2,160,000.00 |
|
|
Less Variable cost |
$ 810,000.00 |
|
|
Contribution |
$ 1,350,000.00 |
|
|
Less Fixed cost |
$ 1,010,000.00 |
|
|
Profit |
$ 340,000.00 |
|
|
Breakeven units |
Total Fixed Cost |
|
|
Contribution per unit |
||
|
$ 1,010,000.00 |
||
|
$ 300.00 |
||
|
Breakeven units |
3367 |
|
|
Breakeven units |
3367 |
75% |
|
Margin of Safety |
1133 |
25% |
|
Total Sales Units |
4500 |
100% |
|
3rd PROPOSAL |
||
|
Selling price for 1st 1500 units |
$ 390.00 |
|
|
Selling price for next 4500 units (5000+1000-1500) |
$ 420.00 |
|
|
Variable cost per unit |
$ 180.00 |
Proportion |
|
Contribution per unit on 1st 1500 units |
$ 210.00 |
25% |
|
Contribution per unit on next 4500 units |
$ 240.00 |
75% |
|
100% |
||
|
Sales |
$ 2,475,000.00 |
|
|
Less Variable cost |
$ 1,080,000.00 |
|
|
Contribution |
$ 1,395,000.00 |
|
|
Less Fixed Cost |
$ 1,020,000.00 |
|
|
Profit |
$ 375,000.00 |
|
|
Breakeven units |
Total Fixed Cost |
|
|
Contribution per unit |
||
|
$ 1,020,000.00 |
||
|
$ 232.50 |
||
|
4387 |
||
|
Breakeven units |
4387 |
73% |
|
Margin of Safety |
1613 |
27% |
|
Total Sales Units |
6000 |
100% |
While evaluating all the three proposals, it has been observed that among all the three proposals and existing system, proposal 1 will entail maximum profitability i.e. $ 388,000 for the business of Telesmart Ltd. because this proposal involves lowest fixed cost in relation to advertisement among all the suggested proposals. Further, breakeven point and point of margin of safety have been calculated to evaluate all the proposals on the basis of these grounds. Breakeven point is that point where firm incurs no losses and earns no profit. Beyond breakeven point the firm starts generating profits and below breakeven point the firm has to incur losses (Drury, 2013). Lower the sales than the breakeven point, higher will be the losses and higher the sales than the breakeven point, higher will be the profits. Therefore, firm must have lower breakeven point so that after achieving the BEP, it can achieve higher profits. The proposal 1 has the breakeven point at the lowest level of its sales i.e. 72% as compared to other two proposals and hence it is advisable for Telesmart Ltd. to choose proposal 1 as it is the most profitable one. The only weakness of proposal one is that it will involve increase in the variable cost per unit by $ 28.
3.
|
Annual Capacity |
100000 |
90000 |
|
Monthly Capacity |
8333 |
7500 |
|
Current Demand per month |
6000 |
6000 |
|
Spare Capacity |
2333 |
1500 |
|
Annual Spare Capacity |
28000 |
18000 |
|
Special order demand |
25000 |
25000 |
|
Spare Capacity (Units) |
3000 |
|
|
Lack of capacity (Units) |
7000 |
|
|
Capacity 100000 units |
||
|
Direct Material Cost |
$ 75.00 |
|
|
Direct Labour Cost |
$ 35.00 |
|
|
Variable Factory Overhead |
$ 10.00 |
|
|
Fixed Factory Overhead |
$ 20.00 |
|
|
Total Cost |
$ 140.00 |
|
|
Profit percentage |
100% |
|
|
Selling Price |
$ 280.00 |
|
|
Number of Bikes |
25000 |
|
|
Contract price |
$ 7,000,000.00 |
|
|
Profitability |
||
|
Contract price |
$ 7,000,000.00 |
|
|
Cost of 25000 bikes |
$ 3,500,000.00 |
|
|
Profitability |
$ 3,500,000.00 |
|
|
Capacity 90000 units |
||
|
Contribution lost on normal sales |
||
|
Selling price per unit |
$ 370.00 |
|
|
Less Variable cost |
$ 140.00 |
|
|
Contribution on normal sales |
$ 230.00 |
|
|
Number of units lost |
7000 |
|
|
Total Contribution Lost |
-$ 1,610,000.00 |
|
|
Cost of remaining units |
$ 4,480,000.00 |
|
|
Total cost to be recovered |
$ 2,870,000.00 |
|
|
Contract price |
$ 5,740,000.00 |
If the capacity of FreeWheels Ltd. is 100000 units, then it would be beneficial for the firm to accept the special order as the order will only consume the spare capacity of the company and would not affect the normal supply of the business. Even after producing 25000 bikes of special order, the firm will still remain with the capacity to produce 3000 additional bikes as it has the spare capacity for such quantity (Hansen, Mowen & Guan, 2007). However, the special order is from the overseas firm, so FreeWheels Ltd. will have to incur the cost of obtaining the permits and licenses to export its goods to China and India. However, because of the special order, the total cost of $ 45 will be ignored and the profitability of business will also be increased by $ 3,500,000.
References:
Bega Cheese Ltd., 2017. Annual Report. Available at: https://www.annualreports.com/HostedData/AnnualReportArchive/b/ASX_BGA_2013.pdf Accessed on: 10.09.2018.
Bhat, S. 2008. Financial management: Principles and practice 2nd ed. India: Excel Books.
Drury, C.M. 2013. Management and cost accounting 3rd ed. Germany: Springer.
Hansen, D., Mowen, M. and Guan, L. 2007. Cost management: accounting and control 6th ed. U.S: Cengage Learning.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
