Financial Management Project Report: Efficiency Position, Breakeven Point, GST Calculations and Feasibility Analysis

This project report covers the efficiency position, breakeven point, GST calculations and feasibility analysis of Big Red Bicycle. It includes calculations and recommendations for improving the financial position of the company.

Running Head: Financial Management
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Project Report: Financial Management

Financial Management
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Activity 1:
a)
The efficiency position of big red bicycle is as follows:
Average
debtors
day
Receivables/
Cost of
sales*365 3,62,500.00 8,00,000.00 165.39
(100000+1000000-
300000)
Average
Creditors
day
Payables/
Purchase*365 80,000.00 10,00,000.00 29.20
Stock
turnover
ratio
average
inventory /
cost of goods
sold *365 2,00,000.00 8,00,000.00 91.25
(100000+300000)/2
b)
The current efficiency position and working capital management level of the company
has been better from last year and explains that the cash conversion cycle of the company has
been enhanced. The company is required to make control on the expenditures so that the
fixed cost could be controlled and it enhances the efficiency position of the company. It
suggests the management of the company to make dew changes into credit policy so that the
cash conversion cycle of the company must be reduced (Gali, 2015).
c)
For analyzing and evaluating the better position of the company, it is required for the
big red bicycle to evaluate the following sources:
1. Cash conversion cycle of the company
2. Alterations among the ledger balances
3. Creditors and debtors policy of the company.

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Activity 2:
1. The company is required to produce 9120 units to reach over the desired product
which is $ 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 5120 2560000
Desired Profit
$
10,00,000
Sales units to achieve the
desired profit (Desired
profit / contribution + sales
units) 9120
$
45,60,000
Working Note:
Calculation of breakeven point
Per unit Total
Selling price $ 500 $ 40,00,000
Less:
Variable cost $ 250 $ 20,00,000
Contribution
(Sales - variable
cost) $ 250 $ 20,00,000
Fixed cost $ 12,80,000

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Breakeven point
(Fixed cost /
contribution) 5120 $ 25,60,000
Units
2. In current scenario, it is required for the company to set the variable cost at $ 215. At
this stage, the company would be able to earn $ 10,00,000 at current manufacturing
capacity.
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
3. The current evaluation and the calculations on the company briefs that the
profitability position and the production level of the company are quite better. Still, it
is required for the company to manage and reduce the level of the variable cost.
Further, it is recommended to the company to set the production plant in India as the
production capacity of the company would be enhanced and company would be able
to make extra profits (Brigham & Ehrhardt, 2013).
4. For analyzing and evaluating the better position of the company, it is required for the
big red bicycle to evaluate the following sources:
 Breakeven point
 Contribution margin
 Margin of safety.

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Activity 3:
1. It is required for an organization to maintain the tax records of at least 5 years
according to ATO (2018).
2. GST calculations of the company 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 1,80,000 2,30,000 1,50,000
Total non-cash
receipts:
1,80,000 2,30,000 1,50,000
Total budgeted
receipts incurring GST
2,00,000 2,40,000 1,60,000
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

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b) Cash
payments
430 520 525
c) GST
liability
16640 19960 12450
(Gambacorta & Signoretti, 2014)

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Activity 4:
According to the activity 2, it is quite beneficial for the company to enter into Indian
market and set up a plant there. It would not only enhance the production capacity of the
company as well as the financial profitability level of the company would also be increased.
The company is firstly required to check the feasibility of the business in Indian market. The
case explains that the marketing feasibility of the business is quite better and it is also easier
for the company to enter into the market and start the business (Borio, 2014).
The financial feasibility of the business evaluate that if the company would invest into
the Indian market than the total sales of the company would be 10000 units out of which
5120 units are breakeven point and rest 4880 units are margin of sales units. It briefs that the
financial feasibility of the company is also strong.
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
Contributio
n (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
Thus, it is recommended to the company to invest into the Indian market as this action
would be more profitable for the company.

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References:
ATO. (2018). Keeping your tax records. Retrieved on 14th April 2018 from
<https://www.ato.gov.au/Individuals/Income-and-deductions/In-detail/Keeping-your-
tax-records/>
Borio, C., (2014). The financial cycle and macroeconomics: What have we learnt?. Journal of
Banking & Finance, 45, pp.182-198.
Brigham, E.F. & Ehrhardt, M.C., (2013). Financial management: Theory & practice.
Cengage Learning.
Galí, J., (2015). Monetary policy, inflation, and the business cycle: an introduction to the new
Keynesian framework and its applications. Princeton University Press.
Gambacorta, L. & Signoretti, F.M., (2014). Should monetary policy lean against the wind?:
An analysis based on a DSGE model with banking. Journal of Economic Dynamics and
Control, 43, pp.146-174.