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

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