Accounting for Managers

This article discusses the cash flow statement of JB HiFi, profit analysis of different options and production capacity analysis for Cycle World Ltd. The cash flow statement of JB HiFi is prepared following the general accounting framework which consist of Cash flow from operating activities, cash flow from investing activities and cash flow from financing activities. The article also provides a detailed analysis of different options for Cycle World Ltd and suggests the most favorable option based on profitability and cost analysis.

Running head: ACCOUNTING FOR MANAGERS
Accounting for Managers
Name of the Student:
Name of the University:
Author’s Note:

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ACCOUNTING FOR MANAGERS
Table of Contents
Question 1........................................................................................................................................2
Question 2........................................................................................................................................3
Question 3........................................................................................................................................5
Reference.........................................................................................................................................8

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ACCOUNTING FOR MANAGERS
Question 1
The cash flow statement of JB HiFi is prepared following the general accounting
framework which consist of Cash flow from operating activities, cash flow from investing
activities and cash flow from financing activities. The operating activities of the business shows
receipts from customers during the year 2017 which is shown to be significantly increased during
the year. The cash payments which are made to the suppliers during the year has also increased
as shown in the cash flow statement of the business. The overall increase in both these estimates
suggest that the business have scaled up the operations of the business due to which both
revenues and expenses of the business has increased significantly. The net cash flow from
operating activities of the business are shown to have increased slightly as the figure increases
from $ 185.1 million in 2016 to 190.6 million in 2017 (JB Hi-Fi Investors. 2018). The cash from
operating activities of the business reveals that the main cash which is earned by the business is
through the operations of the business. The major cash flow from investing activities is through
payment from business combinations and proceeds of borrowings. The financing activities of the
business for the year 2017 shows that the main cash flows of the business are through Share
proceeds and borrowings proceeds.

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Question 2
Current Scenario:
Particulars Sales Volume Cost per unit Amount
SALES REVENUE 5000 $420 $2,100,000
Variable Manufacturing Cost 5000 -$144 -$720,000
Fixed Manufacturing Cost 5000 -$92 -$460,000
Variable Selling & Administration Cost 5000 -$36 -$180,000
Fixed Selling & Administration Cost 5000 -$100 -$500,000
TOTAL COST 5000 -$372 -$1,860,000
TOTAL PROFIT 5000 $48 $240,000
Option 1:
Particulars Sales Volume Cost per unit Amount
SALES REVENUE 6500 $420 $2,730,000
Variable Manufacturing Cost 6500 -$172 -$1,118,000
Fixed Manufacturing Cost 6500 -$71 -$460,000
Variable Selling & Administration Cost 6500 -$36 -$234,000
Fixed Selling & Administration Cost 6500 -$77 -$500,000
Additional Advertisement Cost 6500 -$5 -$30,000
TOTAL COST 6500 -$360 -$2,342,000
TOTAL PROFIT 6500 $60 $388,000

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ACCOUNTING FOR MANAGERS
Option 2:
Particulars Sales Volume Cost per unit Amount
SALES REVENUE 4500 $480 $2,160,000
Variable Manufacturing Cost 4500 -$144 -$648,000
Fixed Manufacturing Cost 4500 -$102 -$460,000
Variable Selling & Administration Cost 4500 -$36 -$162,000
Fixed Selling & Administration Cost 4500 -$111 -$500,000
Additional Advertisement Cost 4500 -$11 -$50,000
TOTAL COST 4500 -$404 -$1,820,000
TOTAL PROFIT 4500 $76 $340,000
Option 3:
Particulars Sales Volume Cost per unit Amount
SALES REVENUE 6000 $420 $2,520,000
Variable Manufacturing Cost 6000 -$144 -$864,000
Additional Rebate 6000 -$8 -$45,000
Fixed Manufacturing Cost 6000 -$77 -$460,000
Variable Selling & Administration Cost 6000 -$36 -$216,000
Fixed Selling & Administration Cost 6000 -$83 -$500,000
Additional Advertisement Cost 6000 -$10 -$60,000
TOTAL COST 6000 -$358 -$2,145,000
TOTAL PROFIT 6000 $63 $375,000
As per the current policy of the business, the management incurs a cost of $ 1,860,000 for
producing a volume of 5000 profits. At the current level of operations, the business can make
profits of around $ 240,000. The plan of the management is to improve the quality of the product
under option 1. The overall cost of business under option has increased due to the option, and the
profits of the business has also increased under the option (Hilton & Platt 2013).

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ACCOUNTING FOR MANAGERS
In the second option, the management focuses more on marketing requirement and
making the product known among the consumers. The volume of the production under this
option will be reducing and therefore the costs of the business is much lower in this option and
the profits of the business are still favorably high which shows that the plan is a good one from
the point of view of the business.
As per the third option of the business, the marketing department is offering a rebate
which will allow the business to boast the sales of the business by additional 1000 units. The
option shows that the sale volume of the business increases under this option and also the costs
in comparison to option 2. The profits of the business also increase but the same is not up to the
mark with opition1. Thus, from the analysis and calculation which is shown in the above tables,
the profits of the business is maximum in first option which is improving the quality of the
product (DRURY 2013). Therefore, the management should select the same.
Question 3
Normal Scenario:
Particulars Sales Volume Cost per unit TOTAL
Annual Sales Volume 72000 $370 $26,640,000
Direct Material Cost 72000 -$75 -$5,400,000
Direct Labor Cost 72000 -$35 -$2,520,000
Variable Factory Overhead 72000 -$10 -$720,000
Fixed Factory Overhead 72000 -$20 -$1,440,000
Variable Selling & Administrative Cost 72000 -$25 -$1,800,000
Fixed Selling & Administrative Cost 72000 -$20 -$1,440,000
TOTAL COST 72000 -$185 -$13,320,000
TOTAL PROFIT 72000 $185 $13,320,000

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ACCOUNTING FOR MANAGERS
Production Capacity - 100,000 units:
Particulars Cost per unit Normal Sale Special Offer TOTAL
Sales Volume 72000 25000 97000
SALES REVENUE $370.00 $26,640,000 $9,250,000 $35,890,000
Direct Material Cost -$75.00 -$5,400,000 -$1,875,000 -$7,275,000
Direct Labor Cost -$35.00 -$2,520,000 -$875,000 -$3,395,000
Variable Factory Overhead -$10.00 -$720,000 -$250,000 -$970,000
Fixed Factory Overhead -$14.85 -$1,440,000
Variable Selling & Administrative Cost -$18.56 -$1,800,000
Fixed Selling & Administrative Cost -$14.85 -$1,440,000
TOTAL COST -$168.25 -$16,320,000
TOTAL PROFIT $201.75 $19,570,000
Production Capacity - 90,000 units:
Particulars Cost per unit Normal Sale Special Offer TOTAL
Sales Volume 65000 25000 90000
SALES REVENUE $370.00 $24,050,000 $9,250,000 $33,300,000
Direct Material Cost -$75.00 -$4,875,000 -$1,875,000 -$6,750,000
Direct Labor Cost -$35.00 -$2,275,000 -$875,000 -$3,150,000
Variable Factory Overhead -$10.00 -$650,000 -$250,000 -$900,000
Fixed Factory Overhead -$16.00 -$1,440,000
Variable Selling & Administrative Cost -$20.00 -$1,800,000
Fixed Selling & Administrative Cost -$16.00 -$1,440,000
TOTAL COST -$172.00 -$15,480,000
TOTAL PROFIT $198.00 $17,820,000
As per the computation which is shown in the above figure, the bid costs of the business
for 100,000 unit capacity is most favorable for the business. This is because the profitability per
unit for the business is maximum in this capacity. Moreover, the per unit costs of the business
are also lower in this aspect. The advantages of choosing such a contact is that:

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 The business will be producing at full capacity and thereby has the possibility of
increasing the normal sales of the business as well (Fullerton, Kennedy & Widener
2013).
 If CEO of Cycle World ltd are satisfied with the products of the business then there is a
possibility of more future deals which is beneficial for the business.
The disadvantages which can be pointed out are shown below:
 There is a chance of overproduction which will leave the business with overstock of final
products problem if the sales of the business does not increase.
 The cost of operations of the business are also very high in this capacity and therefore the
overall risks of the business are also high.

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ACCOUNTING FOR MANAGERS
Reference
DRURY, C.M., 2013. Management and cost accounting. Springer.
Fullerton, R.R., Kennedy, F.A. & Widener, S.K., 2013. Management accounting and control
practices in a lean manufacturing environment. Accounting, Organizations and Society, 38(1),
pp.50-71.
Hilton, R.W. & Platt, D.E., 2013. Managerial accounting: creating value in a dynamic business
environment. McGraw-Hill Education.
JB Hi-Fi Investors. 2018. Annual Reports | JB Hi-Fi Solutions. [online] Available at:
https://investors.jbhifi.com.au/annual-reports/ [Accessed 6 Sep. 2018].