ACC00724: Evaluating Cash Cycle & Profitability Improvement S2 2018

This report provides a comprehensive analysis of a company's cash conversion cycle over five years, evaluates trends in cash flows from operating activities, and assesses various suggestions for improving profitability. It examines the impact of different strategies on profit, break-even point, and margin of safety. The report also includes a cost of production analysis under different scenarios and considers qualitative parameters for decision-making. Furthermore, it discusses the long-term implications of increasing production capacity and making strategic deals. The analysis incorporates both quantitative and qualitative factors to provide a well-rounded perspective on financial performance and strategic decision-making.

Question 1
Cash Conversion cycle has been presented here-in-below:
Cash Conversion Cycle
Sl
No Particulars
2017 (Anon.,
2017)
201
6
2015 (Anon.,
2015)
201
4
2013 (Anon.,
2013)
1
Inventory Turnover
Period 58.36
60.5
7 59.95
60.0
5 63.34
2
Debtors Turnover
period 32.03
30.7
1 31.41
36.1
5 43.46
3
Creditors Turnover
Period 40.99
39.3
2 40.20
46.1
6 55.38
4 Cash Conversion Cycle 49.40
51.9
6 51.16
50.0
4 51.42
Note: Since data of purchase is not available, cost of sales have been taken into
consideration.
Further, on analysis of Cash flow statement of past 2 years on may observe that cash flow
from operating activity has shown an uptrend and has increased roughly by 5 Mio. Also, the
same has been mainly on account of increase in receipt from customer. There has also been a
significant increase in payment of expenses to employees. Further, one may also observe that
cash and cash equivalent has increased.
Question 2
On analysis of the proposed suggestion given be respected personnel of the organisation, the
following working has been obtained:
Profit point of view
Present Scenario
Sl no Particulars Per unit Amount
1 Sales 5000
2 Selling Price 420
3 Variable Cost 144
4 Contribution 276
5 Contribution whole 1380000
6 Fixed Manufacturing Cost 460000
7 Variable Selling and Administrative Cost 180000
8 Fixed Selling and Administrative Cost 500000
9 Profit 240000
Suggestion 1

Sl no Particulars Per unit Amount
1 Sales 6500
2 Selling Price 420
3 Variable Cost 172
4 Contribution 248
5 Contribution whole 1612000
6 Fixed Manufacturing Cost 460000
7 Variable Selling and Administrative Cost 234000
8 Fixed Selling and Administrative Cost 530000
9 Profit 388000
Suggestion 2
Sl no Particulars Per unit Amount
1 Sales 4500
2 Selling Price 480
3 Variable Cost 144
4 Contribution 336
5 Contribution whole 1512000
6 Fixed Manufacturing Cost 460000
7 Variable Selling and Administrative Cost 162000
8 Fixed Selling and Administrative Cost 550000
9 Profit 340000
Suggestion 3
Sl no Particulars Per unit Amount
1 Sales 6000
2 Selling Price 420/390
3 Variable Cost 144
4 Contribution 276/246
5 Contribution whole 1611000
6 Fixed Manufacturing Cost 460000
7 Variable Selling and Administrative Cost 216000
8 Fixed Selling and Administrative Cost 560000
9 Profit 375000
On the profit profit if one consider the best suggestion which maximises the profit of the
group shall be suggestion 1 under which the profit has been maximised.
Break even point of view
Present Scenario

Sl no Particulars Per unit Amount
1 Sales 5000
2 Selling Price 420
3 Variable Cost 144
4 Contribution 276
5 Variable Selling and Administrative Cost 36
6 Net Variable 240
7 Fixed Manufacturing Cost 460000
8 Fixed Selling and Administrative Cost 500000
9 Break even quantity 4000
Suggestion 1
Sl no Particulars Per unit Amount
1 Sales 6500
2 Selling Price 420
3 Variable Cost 172
4 Contribution 248
5 Variable Selling and Administrative Cost 36
6 Net Variable 212
7 Fixed Manufacturing Cost 460000
8 Fixed Selling and Administrative Cost 530000
9 Break even quantity 4670
Suggestion 2
Sl no Particulars Per unit Amount
1 Sales 4500
2 Selling Price 480
3 Variable Cost 144
4 Contribution 336
5 Variable Selling and Administrative Cost 36
6 Net Variable 300
7 Fixed Manufacturing Cost 460000
8 Fixed Selling and Administrative Cost 550000
9 Break even quantity 3367
Suggestion 3
Sl no Particulars Per unit Amount
1 Sales 6000

2 Selling Price 420/390
3 Variable Cost 144
4 Contribution 276/246
5 Variable Selling and Administrative Cost 36
6 Net Variable 240/210
7 Fixed Manufacturing Cost 460000
8 Fixed Selling and Administrative Cost 560000
9 Break even quantity 4437.5
Suggestion 2 is best
Margin of Safety View point
Present Scenario
Sl no Particulars Per unit Amount
1 Sales 5000
2 Selling Price 420
3 Break even quantity 4000
4 MOS Quantity 1000
5 Margin of safety sales 420000
Suggestion 1
Sl no Particulars Per unit Amount
1 Sales 6500
2 Selling Price 420
3 Break even quantity 4670
4 MOS Quantity 1830
5 Margin of safety sales 768679.2
Suggestion 2
Sl no Particulars Per unit Amount
1 Sales 4500
2 Selling Price 480
3 Break even quantity 3367
4 MOS Quantity 1133
5 Margin of safety sales 543840
Suggestion 3
Sl no Particulars Per unit Amount
1 Sales 6000

2 Selling Price 420/390
3 Break even quantity 4438
4 MOS Quantity 1562
5 Margin of safety sales 656040
Suggestion 1 is best
Qualitative parameter
Suggestion 3 shall be best as the same is practical as discount under initial sales shall entice
the customer and intense advertisement shall result in increased sales and the future sales can
be made without discount. Thus, it shall be the most practical solution under the present
scenario.
Question 3
Statement showing cost of production
Sl
No Particulars Present
Scenario Scenario 1 Scenario 2 Scenario 3
1 Present Sales per year 72000 72000 72000 72000
2 Direct Material Cost 75 75 75 75
3 Direct Labour Cost 35 35 35 35
4 Variable Factory overhead 10 10 10 10
5 Fixed Factory over head 20
6 Variable selling and Admin cost 25
7 Fixed selling and Admin Cost 20
8 Cost of production 185 120 120 120
9
Additional cost on account of
production being bottleneck 18.20
10 Total cost 185 120 120 138.20
Since profit data has not been provided, the contribution analysis has not been undertaken.
Further, the additional cost on account of restricted production has been considered as
bottleneck in scenario 3 and the additional cost of 65*7000 has been allocated over 25000
products.
Part 2 of question 2
If the production capacity had been 1,00,000 units company can think of long term vision and
say yes to the present deal as the same shall expand the production capacity and economies of
scale might also be achieved. Further, company will be able to pitch in a new customer and
shall be able to make profit from it in the long run.

On social front, increased production creates positive image for the company in the form of
employment generation and better market image. On economic front increase in profits over
the long run and customer acquisition.
Further, I shall propose CEO of the company to charge dollar 120 per unit under the initial
stage to acquire the customer and reap benefits of increased sales and profit in long run. The
same shall be in line with the qualitative and quantitative requirements.
Bibliography
Anon., 2013. JB HI-FI. [Online]
Available at:
http://www.annualreports.com/HostedData/AnnualReportArchive/J/ASX_JBH_2013.pdf
[Accessed 5 September 2018].
Anon., 2015. JB HI-FI. [Online]
Available at:
http://www.annualreports.com/HostedData/AnnualReportArchive/J/ASX_JBH_2015.pdf
[Accessed 4 September 2018].
Anon., 2017. JB HI-FI. [Online]
Available at: https://www.jbhifi.com.au/Documents/2017%20Annual%20Report.pdf
[Accessed 4 September 2018].