Accounting for Managers: Analysis of JB Hi-Fi's Cash Cycle and Proposal Evaluation

This article analyzes JB Hi-Fi's cash cycle and evaluates three proposals by production, sales, and marketing managers. It includes quantitative and qualitative factors, break-even analysis, and sensitivity analysis. The proposals aim to increase sales volume, raise unit price, and offer a rebate on initial sales. The article also discusses the advantages and disadvantages of accepting a special order. The subject is Accounting for Managers, and the course code and college/university are not mentioned.

ACCOUNTING FOR MANAGERS
JB Hi-FI
Student Name
[Pick the date]

Question 1
Computation of cash cycle (JB Hi-Fi)
Cash show statement (JB Hi-Fi –Annual Report FY2017)
Cash flow from operations – A significant increase in the cash flows generated from operations
is apparent in FY2017 which is the result of acquisition of “The Good Guys”. As a result, the
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customer receipts have surged which despite being partly annulled by rising payment to
suppliers and employees still have not been able to completely undo the impact of rising top-line.
The jump in the operating cash flow would have been even more significant if it had not been to
the surge in tax paid in FY2017 by about $ 32 million (JB Hi-Fi, 2017).
Cash flow from investing – There is a huge outflow of cash in FY2017 on account of the
acquisition of “The Good Guys” for a sum of $870 million which has dwarfed other items in the
investing activities (JB Hi-Fi, 2017).
Cash flow from financing – The company has funded this big ticket acquisition by ensuring that
incremental proceeds are raised from both debt and equity. As a result, the incremental debt
inflow is $ 450 million along with $ 359.9 million of cash derived from equity related proceeds
(JB Hi-Fi, 2017).
Question 2
Proposal 1: Aaron Jacobsen (Production manager)
It has been stated in the proposal that the higher quality mobile phones should be manufactured
leading to an additional variable cost of $28. Also, the advertisement cost associated with the
proposal would be $30,000. The execution of proposal would lead to boost in sales volume of
mobile phone by 30%.
 The quantitative analysis for the proposal 1 is furnished below.
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 The sensitivity analysis for the proposal 1 is furnished below.
 The break-even analysis for the proposal 1 is furnished below.
Let x units is the sale volume for the break-even. The profit in this case would be $240,000.
Computation of break-even units
Computation of margin of safety
 Comment – The proposal has the potential of higher profit generation provided the estimates
are met in practical. The most crucial of these is sales volume increase. Considering the
above computations, an increment of 802 units from the current sale of 5000 units is required
to ensure that the profit remains at $ 240,000 (Arnold, 2015).
 The key qualitative factor for this proposal include consideration on the idle capacity
available to provide the incremental mobile phone units coupled with ensuring supplies in a
timely manner.
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Proposal 2: Joanne Arnett (Sales manager)
It has been stated in the proposal that the existing mobile phones are unique but they are not
sufficient popular among the customers. Hence, it is essential to advertise the phones more
which mean the advertisement cost associated with the proposal would be $50,000. The
execution of proposal would lower the sales of mobile phone by 10% but the unit price would be
increased by $ 60 per unit.
 The quantitative analysis for the proposal 2 is furnished below.
 The sensitivity analysis for the proposal 2 is furnished below.
 The break-even analysis for the proposal 2 is furnished below.
Let x units is the sale volume for the break-even. The profit in this case would be $240,000.
Computation of break-even units
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 Comment – The proposal has the potential of higher profit generation provided the estimates
are met in practical. The most crucial of these is sales volume increase. Considering the
above computations, an decrement of 333 units from the estimated sales of 4500 units is
allowable to ensure that the profit remains at $ 240,000, thereby presenting only a limited
cushion for uncertainty (Damodaran, 2015).
 The key qualitative factor for the proposal 2 would be the preference of the consumers with
regards to the price and features that they want since the company is planning to raise the
prices.
Proposal 3: Jennifer Saunders (Marketing director)
It has been stated in the proposal that company should give rebate of $30 on initial 1500 mobile
phones under promotional campaign. Hence, it is essential to advertise the rebate program
among the people, the advertisement cost associated with the proposal would be $60,000. Due
the execution of the proposal, the company would be able to sell extra 1000 mobile phones.
 The quantitative analysis for the proposal 3 is furnished below.
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 The sensitivity analysis for the proposal 3 is furnished below.
 The break-even analysis for the proposal 3 is furnished below.
Let x units is the sale volume for the break-even. The profit in this case would be $240,000.
Computation of break-even units
Further,
 Comment – The proposal has the potential of higher profit generation provided the estimates
are met in practical. The most crucial of these is sales volume increase. Considering the
above computations, a decrement of 542 units from the incremental expected sales of 1000
units is required to ensure that the profit remains at $ 240,000 and hence providing plenty of
cushion to the company (Petty et. al., 2015).
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 The key qualitative factor for the proposal 3 would be the idle capacity coupled with
response of price lowering by peers. It is possible that they may also lower prices so as to
keep market share intact and thereby a price way may commence.
Question 3
(1)
(a) Capacity (units) = 100,000
It is apparent that company is selling 72,000 units to their regular customers and the capacity of
firm is 100,000 and therefore, company has spare amount of units to complete 25,000 units of
bikes for Cycle World Ltd. The following factors needs to be taken into consideration.
 No surplus fixed cost
 No surplus selling cost
 No surplus administrative cost
 Expenses in terms of variable cost ($10 per unit)
(b) Capacity (units) = 90,000
It is apparent that company is selling 72,000 units to their regular customers and the capacity of
firm is 90,000 and therefore, company does not have spare amount of units to complete 25,000
units of bikes for Cycle World Ltd under current scenario. Hence, company has to pull back the
supply from regular customers to accommodate the 7,000 units. Cost would be saved for 7000
nits under no selling and administrative costs.
Cost saved for 7000 units=25∗7000=$ 0.175 million
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(2) The quote derived by the company is a function of essentially two key factors (Brealey,,
Myers & Allen, 2014).
 Production costs (incremental) which are incurred by the company for fulfilling the
special order which would be only limited to variable production costs only.
 Desired margins or mark-up which has been kept in line with the current customers
where 100% margin is earned by the company.
Opportunities for company from special order
 Acquiring a long term customer
 Improving capacity utilisation
 Improvement in financial position and profits of the company
 Potential expansion to cater to other big clients
Disadvantages for company from special order
 Lack of focus from direct customers to bulk orders
 Reduce the profitability owing to lower price being charged
References
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Arnold, G. 2015 Corporate Financial Management. Financial Times Management, Sydney:
Brealey, R. A., Myers, S. C., & Allen, F. 2014 Principles of corporate finance, McGraw-Hill,
New York
Damodaran, A. 2015. Applied corporate finance: A user’s manual, Wiley, John & SonsNew
York:
Petty, J.W., Titman, S., Keown, A., Martin, J.D., Martin, P., Burrow, M., & Nguyen, H. 2015.
Financial Management, Principles and Applications, Pearson Education, French Forest Australia ,
NSW
JB Hi-Fi 2017 Annual Report 2017, viewed on September 7, 2018
<<https://www.jbhifi.com.au/Documents/2017%20Annual%20Report.pdf>
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