Efficiency level and working capital management of Big Red Bicycle Pty Ltd

This report evaluates the efficiency level and working capital management of Big Red Bicycle Pty Ltd. It suggests controlling expenses and fixed costs to maintain efficiency and reducing stock turnover days to manage cash conversion cycle. It also recommends entering the Indian market for better performance and profitability.

BSBFIM501 Manage budgets and financial plans
Project Report: Assessment No. 4

BSBFIM501 Manage budgets and financial plans
Task A:
a) The position of Big red cycle in terms of efficiency level 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) Over the evaluation on the current efficiency level of Big red bicycle pty ltd and the
total working capital management level of the business, it has been found that the
total cash conversion cycle time of the business has been improved and it explains
that company would require more working capital for the business. So, it is suggested
to the business to make control over the expenses and the fixed cost to maintain the
efficiency level. Few changes into the Credit policy could also help the business to
reduce the level of CCC.
c) In order to evaluate and analyze the company’s better position, the company is
required to take the help the below given sources:
1. Credit policies of the business
2. Changes and reduction in the expenses of the business
3. Focus on the cash conversion cycle
Task B:
a)

BSBFIM501 Manage budgets and financial plans
1. On the basis of above table, it is required for big red bicycle to manufacture 9120
units per annum to reach over a point where the desired profit of the business
would be $ 10,00,000.
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. In the current position of business, big red bicycle limited has to reduce the
variable cost at $ 215. Through reducing the variable cost to $ 215, it would be
possible for the business to earn $ 10,00,000 at the current production capacity of
the business.
Calculation of variable cost
Total sales $ 40,00,000
Less: Profit $ 10,00,000
Less: Fixed cost $ 12,80,000
Variable cost $ 17,20,000
Divided: number of sales
units 8000
Variable cost per unit $ 215

BSBFIM501 Manage budgets and financial plans
b) The evaluation on the production level and profits of the business express about better
performance of bug red bicycle. Though, the evaluation express that the changes into
the variable cost would improve the profitability level more. It is also recommended
to the business to start the work in Indian market as it would improve the performance
of the business at great level. And ultimately, the profitability level would also be
improved.
c) For completing this activity, the main source of information are as follows:
 Contribution margin
 Break-even point
 Margin of safety (Higgins, 2012).
Task C:
a) According to ATO (2018), it is important for a business to maintain and manage the 5
year’s tax records to satisfy the requirements of ATO.
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:
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

BSBFIM501 Manage budgets and financial plans
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:
In task A, the business should make the changes into credit policies to manage the cash
conversion cycle of the business. The Average debtors day, Average Creditors day and Stock
turnover days of the business is 165.39 days, 29.20 days and 91.25 days. It explains that the
business should reduce the stock turnover days to manage the CCC.
Further, in task B, the entrance in Indian market would offer huge profit to the
company. Along with the improvement in the production capacity, the prpfitability level
would also be improved. The marketing feasibility of the business is also higher and thus the
business should definitely set up the plant in Indian market.
Calculation of sales unit on the basis of desired profit
Per unit Total

BSBFIM501 Manage budgets and financial plans
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)
Thus, the business is required to reduce the stock turnover days and enter into the
Indian market for better performance of business.
Task E:
Basic accounting principles:
Accounting principles make a base for the accountant and auditor to prepare the
accounting reports and audit them respectively. It sets the uniformity in the accounting
reports of all the organizations.
Cash flows:
Cash flow is a financial statement of a business which explains the cash inflow and
cash outflow of a business in a particular time period. It also expresses that cash outflow and
inflow in their nature such as operating, financing and investing.
Ledgers and financial statement:
Ledgers describe about the each account which has been opened in an organization
and it helps a business to prepare the financial statement. Financial statement are the main
reports which is requisite for the business to prepare for the stakeholders.
Profit and loss statement:
Profit and loss statement is a financial statement of a business which explains the total
revenues and expenses of a business which has occurred in a particular time period. It also
expresses that revenues and expenses in their nature such as operating and non-operating.

BSBFIM501 Manage budgets and financial plans
References:
ATO. 2018. Keeping your tax records. [online]. Available at:
https://www.ato.gov.au/Individuals/Income-and-deductions/In-detail/Keeping-your-tax-
records/ (accessed on 21st Aug 2018).
Gapenski, L.C., 2008. Healthcare finance: an introduction to accounting and financial
management. Health Administration Press.
Higgins, R. C., 2012. Analysis for financial management. McGraw-Hill/Irwin.

BSBFIM501 Manage budgets and financial plans