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RUNNING HEAD: BUSINESS AND MANAGEMENT
BSBFIM501-Assessment-Task-4
By Jasvir Kaur Mander
[Name of the Writer]
[Name of the Institution]
TASK A
Calculations
For Debtor Days:
We know the formula for average debtor days can be given as,
Debtor Days=DebtorsAverage Daily Sales
Or,
Debtor Days=Debtors(Sales365)
From the table in the given question, we get,
Debtors=Trade Debters=$362,500
From the Appendix 2, we get,
Sales=2,900,000
Putting in the formula, we get,
Debtor Days=362,500(2,900,000365)
So Debtor Days can be given as,
196215029591000
Debtor Days=45.62 days
For Creditor Days:
We know the formula for average creditor days as,
Creditor Days=Trade PayablesCost of Sales×365
By putting the values from the table in the given question and the Appendix 2, we get,
Creditor Days=80,0002,900,000×365
189547527432000So,
Creditor Days=10.06 days
For Average Stock Turnover:
We know the formula for the average stock turnover as,
Average Stock Turnover=Cost of Goods SoldAverage Inventory
For the average inventory, we get the formula as,
Average Inventory=(Opening Stock+Closing Stock)×0.5
For the values of Opening Stock and Closing Stock, we refer to the table provided with the question, and we get,
Average Inventory=(100,000+300,000)×0.5
So, the average inventory becomes,
Average Inventory=200,000
Putting the value of average inventory in the above formula and taking the value of cost of goods sold from Appendix 2, we get,
Average Stock Turnover=2,900,000200,000×365
171450030480000So,
Average Stock Turnover=5292.2
For calculations, please refer to the part a, b and c of this task.
The two ways to increase the cash flow include:
Reducing the trading terms: To reduce the trading terms to about 7 days rather than 30, 60 or 90 days.
Ceasing supply for non-payment: To improve the cash flow, it is required to cease the supply to the dealers who do not pay on time until their payments are clear.
Three sources of information include:
Statement of Financial Position with current ledger account.
Statement of Financial Performance.
Ageing Debtors Budget.
TASK B:
(a). Solution: We get,
The price of each bike produced= $500 (exclusive of GST)
The current variable costs= $250
Fixed costs= $1,280,000
We get our total costs as,
Total costs=Fixed costs-Total variable costs
Total costs=$1,280,000-($250×8,000 units)
Total costs=1,280,000+2,000,000
So,
Total costs=$3,280,000
For the price of each bike, for 8,000 units we get our total earning as,
Earning=$500×8,000
Earning=$4,000,000
Now, for the profits, we get,
Profits=Earnings-Total costs
Profits=$4,000,000-$3,280,000
Profits=$720,000
So, the profits for 8,000 units under the current fixed and variable costs are not equal to the target i.e. $1,000,000. So we need a bigger plant to shift our production unit. To calculate how short are we in terms of units, we get,
Difference in units=$720,000$500
So, we get our units as,
Difference in units=1,440 units
116205030670500So,
Total required units=8,000+1,440=9,440 units
Hence the total units required for the producing the profits of $1,000,000 under the current variable and fixed costs are 1,440 units. The company needs to work more on the Indian unit to reach the desired amount of the profits, having a production capacity of 10,000 units.
(b). Solution: Under the current variable cost i.e. $250, we get out profits as (calculated in part a),
Total profits=$720,000
This means we have a cost deficit of about $280,000. To calculate the desired variable cost, we first find the total price for the 8,000 units for each bicycle to be about $500. We get,
Earning=$500×8,000
Earning=$4,000,000
So, for the current fixed costs i.e. $1,280,000 we need to restrict the total cost to about $3,000,000. For that, we subtract the total target cost i.e. $3,000,000 and total fixed cost i.e. $1,280,000. We get,
Required total variable cost=$3,000,000-$1,280,000
Or,
Required total variable cost=$1,720,000
So, for a single variable cost, we divide the required total variable cost with the total number of units i.e. 8,000. We get,
Required single variable cost=$1,720,0008,000
159067532385000So,
Required single variable cost=$215
Answer: It is recommended for BRB to utilize the Indian production plant for its overseas operation as it is possible for the BRB to reach the required target of profits i.e. $1,000,000 easily with reference to the production capacity of the plant.
Answer: The three sources of information include:
Per unit price of the bicycle.
The variable costs.
The fixed costs.
TASK C
Answer: Though the time limit for keeping the records is five years, to claim the GST credit, the time limit set by the ATO is four years. This means the GST record must be kept for a minimum of four years.
Solution: The calculations can be seen as below,
July
August
September
Budgeted cash receipts incurring GST:
Cash sales
20,000
10,000
10,000
Cash revenue (besides sales)
0
0
0
Cash receipts from sale of assets (not stock)
0
0
0
Total receipts for GST
20,000
10,000
10,000
Budgeted non-cash receipts incurring GST:
Debtors sales
180,000
230,000
150,000
Total non-cash receipts
180,000
230,000
150,000
Total budgeted receipts incurring GST
200,000
240,000
160,000
Budgeted cash payments incurring GST:
Cash purchases of stock
0
0
0
Cash expenses
4,300
5,200
5,250
Total cash receipts incurring GST
4,300
5,200
5,250
Budgeted credit payments incurring GST:
Credit purchases of stock incurring GST
25,000
30,000
25,000
Credit purchases of assets (besides stock)
4,300
5,200
5,250
Total cash payments incurring GST
29,300
35,200
30,250
Total budgeted cash payments incurring GST
33,600
40,400
35,500
GST cash budget calculations
Cash receipts
20,000
10,000
10,000
Cash payments
29,300
35,200
30,250
GST liability
12.15%
12.15%
12.15%
TASK D
Answer: From Task B, it is recommended that the company shifts its overseas production to Indian production plant. To ensure the appropriate activities, timelines, accountabilities and monitoring and to develop an action plan for the implementation and monitoring the recommendations. The plan is provided below,
Objective of the plan: To shift the production plant to India for improving the profits generated by the company.
Activities to carry out before implementation: The following activities are to be carried out before shifting the plant to India. This includes,
Surveying the entire place where the plant is to be run.
Run an estimate again of the costs involved.
Make sure appropriate dealers are available for purchasing the bicycles.
To make sure the staff is competent enough.
Run a cost analysis and final market analysis again before starting the plant.
Monitoring: The following steps are to be carried out related to monitoring, which include,
To have a close eye at the quality of the units being produced.
To make sure the desired profit margin and target is being achieved.
To make sure the desired number of units are being produced during each quarter.
Timelines: The time line to be followed would comprise of each quarter of the year with the year divided into four quarters. This includes Q1, Q2, Q3 and Q4. The fiscal year must end at March 31, of each year with reference to the financial policy followed in India.
Accountabilities: The dealers must be given the appropriate number of units on credit with a period of 7 days. This will ensure that the cash flow is improved which helps strengthen the company.
TASK E:
Answer:
Basic Accounting Principles: The basic principles of accounting include,
Revenue Recognition Principle
This principle corresponds to the revenue which is provided in the income statement of an enterprise.
Historical Cost Principle
This principle states that the asset is recorded ordinarily in the records of accounting at the cost paid for acquiring it at the time of its acquisition and the cost becoming the basis for the accounts during the acquisition and subsequent accounting periods.
Matching Principle
This principle states that the expenses which have been incurred in the accounting period must be matched with the revenues which are recognized in that very period e.g. if the revenues are recognized on all the goods being sold at that specific period, the costs must be charged based on that period.
Full Disclosure Principle
This principle states that the financial statements of a company must act as the means to convey and not conceal. Every relevant and real information must be stated in the financial statements of the company (Nyquist, 2000, pp. 178-185).
Objectivity Principle
This principle states that the data related to accounting must be verifiable, definite and free from every personal bias of the accountants.
Cash Flows: The cash equivalent and the net amount of the cash which is being transferred in and out of the business. The positive cash flow shows the ability of the company for creating the value for the stakeholders (Almeida et al, 2004, pp. 1777-1804).
Ledgers and Financial Statements: The financial statements of a firm are generated by ledger and is widely used by the accountants. The role of the ledger is to provide the entire record of the company’s financial transaction throughout the company’s lifetime. The account information is held in the ledger, necessary for preparing the financial statements and including the accounts for assets, owner’s equity, revenues, expenses and liabilities.
Profit and Loss Statements: The role of these statements is to provide a summary of the revenues, expenses and costs which have incurred during a specified period, which corresponds to the fiscal quarter or the entire year. These statements shed light on the ability of the company to generate the profits by generating an increase in revenue reducing the costs or both.
What do you think?
The list provided surely holds everything needed to help with the crucial management of the company. Everything provided in the list is essential for the growth of the company.
References
Almeida, H., Campello, M. and Weisbach, M.S., 2004. The cash flow sensitivity of cash. The Journal of Finance, 59(4), pp.1777-1804.
Nyquist, S., 2000. Accounting theory and financial environmental reports. Eco‐Management and Auditing: The Journal of Corporate Environmental Management, 7(4), pp.178-185.
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