Efficiency Performance of Big Red Cycle

This document provides a study on the efficiency performance of Big Red Cycle, including its average debtors day, average creditors day, and stock turnover ratio. It also discusses the impact of these ratios on the company's working capital and cash conversion cycle. Recommendations are given to reduce operating costs and improve cash collection policies.

Australian Ideal College
RTO No.: 91679 CRICOS Provider Code: 03053G ABN: 15 126 592 756
Sydney Campus: Level 7 & 8, 75 King St, Sydney NSW 2000 Australia
Tel: [phone] Fax: [phone]Educating for Excellence
Project Report: Assessment No. 3

Australian Ideal College
RTO No.: 91679 CRICOS Provider Code: 03053G ABN: 15 126 592 756
Sydney Campus: Level 7 & 8, 75 King St, Sydney NSW 2000 Australia
Tel: [phone] Fax: [phone]Educating for Excellence
Task A:
a) Efficiency performance of Big red cycle is as follows:
Average
debtors
day
Receivables/
Cost of
sales*365 $ 3,62,500.00
(100000+1000000-
300000) = $ 8,00,000.00
165.39
days
Average
Creditors
day
Payables/
Purchase*365 $ 80,000.00 $ 10,00,000.00
29.20
days
Stock
turnover
ratio
average
inventory /
cost of goods
sold *365
(100000+300000)/2
= 2,00,000.00
(100000+1000000-
300000) = $ 8,00,000.00
91.25
days
b) Through conducting the study over efficiency level of company, the working capita
level and cash conversion cycle of the company has been studied. On the basis of the
report, it has been concluded that cash conversion level of the company has been
higher and it indicates that the company has to invest more working capital in the
organization to run the business (Dunk, 2011). The above ratios indicate about a great
time in which the invested amount would be got back by the company. Hence, the big
red bicycle is suggested to reduce the operating cost level and improve the policies
regarding the cash collection so that CCC level of the company could be reduced.
c) Below are the few sources which could be used in an organization to measure the
efficiency level of an organization:
1. Credit collection policies
2. Identification and reduction in unnecessary expenses
3. Better policies for cash conversion cycle

Australian Ideal College
RTO No.: 91679 CRICOS Provider Code: 03053G ABN: 15 126 592 756
Sydney Campus: Level 7 & 8, 75 King St, Sydney NSW 2000 Australia
Tel: [phone] Fax: [phone]Educating for Excellence
Task B:
a)
1. Through the calculations, it is has been found that Big red bicycle has to produce
minimum 9120 units per annum in order to get $ 10,00,000 desired profit in a
year.
A) Calculation of sales unit on the basis of desired profit
Selling price $ 500 $ 40,00,000
Variable cost $ 250 $ 20,00,000
Contribution (Sales -
variable cost) $ 250 $ 20,00,000
Fixed cost $ 12,80,000 $ 12,80,000
BEP (12,80,000 /250) 5120 2560000
Desired Profit $ 10,00,000
Sales units to achieve the
desired profit (Desired
profit / contribution + sales
units)
(10,00,000
/250)+5120 =
9120 $ 45,60,000
2. Further, the calculations explains that if the $ 10,00,000 is achived in the current
manufacturing process of the compant the the variable cost of the company should
be reduced to $ 215. In order to reduce the variable cost to $ 215, the business
would be able to earn $ 10,00,000 profit at the current production level.
Calculation of variable cost
Total sales $ 40,00,000
Less: Profit $ 10,00,000
Less: Fixed cost $ 12,80,000

Australian Ideal College
RTO No.: 91679 CRICOS Provider Code: 03053G ABN: 15 126 592 756
Sydney Campus: Level 7 & 8, 75 King St, Sydney NSW 2000 Australia
Tel: [phone] Fax: [phone]Educating for Excellence
Variable cost $ 17,20,000
Divided: number of sales
units 8000
Variable cost per unit $ 215
b) The study explains that Big red bicycle is performing better in the market in terms of
profit level and production level. However, study explains that few changes into
variable cost of the company would help it to improve the profits of the business.
Moreover, diversification of business in Indian market would also be profitable for
the business in terms of financial and non financial position of the company.
c) In order to complete this activity, below are the main sources:
 Contribution margin
 MOS (margin of safety)
 Break-even sales and point (Dunk, 2011)
Task C:
a) ATO (2019) depicts that minimum 5 year taxation record must be kept by the
businesses.
b) The calculations of GST of the business are as follows:
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:

Australian Ideal College
RTO No.: 91679 CRICOS Provider Code: 03053G ABN: 15 126 592 756
Sydney Campus: Level 7 & 8, 75 King St, Sydney NSW 2000 Australia
Tel: [phone] Fax: [phone]Educating for Excellence
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
a) Cash
receipts
2000 1000 1000
b) Cash
payments
430 520 525
c) GST
liability
16640 19960 12450
Task D:
According to the study conducted over task B, it is recommended to the company to
diversify the business at Indian market. This diversification would help the company to
improve the profitability level and market level. It would also help the company to improve
the production capacity (Chapman, and Lili-Anne, 2009). The market study briefs about
better changes into the company in order to enter into the Indian market.

Australian Ideal College
RTO No.: 91679 CRICOS Provider Code: 03053G ABN: 15 126 592 756
Sydney Campus: Level 7 & 8, 75 King St, Sydney NSW 2000 Australia
Tel: [phone] Fax: [phone]Educating for Excellence
Calculation of sales unit on the basis of desired profit
Per unit Total
Selling price $ 500 $ 50,00,000
Less:
Variable cost $ 250 $ 25,00,000
Contribution (Sales -
variable cost) $ 250 $ 25,00,000
Fixed cost $ 12,80,000 $ 12,80,000
BEP 5120 $ 25,60,000
Margin of Safety 4880 $ 24,40,000
(Gapenski, 2008)
Hence, it is recommended to the business to enter into the Indian market and improve
the MOS level of the company.

Australian Ideal College
RTO No.: 91679 CRICOS Provider Code: 03053G ABN: 15 126 592 756
Sydney Campus: Level 7 & 8, 75 King St, Sydney NSW 2000 Australia
Tel: [phone] Fax: [phone]Educating for Excellence
References:
A.S. Dunk, "Product innovation, budgetary control, and the financial performance of
firms." The British Accounting Review, Vol.43.2, pp. 102-111, 2011.
Ato.gov.au. (2019). Keeping your tax records. [online] Available at:
https://www.ato.gov.au/Individuals/Income-and-deductions/In-detail/Keeping-your-tax-
records/ [Accessed 14 May 2019].
C. S. Chapman, and K. Lili-Anne. "Information system integration, enabling control and
performance." Accounting, organizations and society Vol. 34.2, pp, 151-169, 2009.

Australian Ideal College
RTO No.: 91679 CRICOS Provider Code: 03053G ABN: 15 126 592 756
Sydney Campus: Level 7 & 8, 75 King St, Sydney NSW 2000 Australia
Tel: [phone] Fax: [phone]Educating for Excellence