ACC00724: Accounting for Managers, S2 2018 - Assignment 2 Report

This report provides a comprehensive analysis of accounting principles and financial statements, focusing on three companies: Woolworths Group Limited, Telesmart Limited, and FreeWheels Limited. The first section calculates the cash cycle period for Woolworths from 2013 to 2017 and evaluates the trends in its cash flow statements for 2016 and 2017, highlighting operating, investing, and financing activities. The second section evaluates three proposals from Telesmart's managers to increase profitability, considering factors like sales volume, pricing, and advertising expenses. The third section analyzes FreeWheels Limited's manufacturing capacity and evaluates a special order from Cycle World Limited, considering variable costs, fixed costs, and qualitative factors such as employee morale and investor opinions. The report provides detailed financial data, calculations, and evaluations to support its conclusions, offering valuable insights into financial management and decision-making.

Running head: ACCOUNTING FOR MANAGERS
Accounting for Managers
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

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Table of Contents
Question 1: Woolworths Group Limited.........................................................................................2
Question 2: Telesmart Limited........................................................................................................5
Question 3: FreeWheels Limited.....................................................................................................8
Requirement 1(a):........................................................................................................................8
Requirement 1(b):........................................................................................................................9
Requirement 2:.............................................................................................................................9
References:....................................................................................................................................11

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Question 1: Woolworths Group Limited
Cash cycle period for the years 2013-2017:
Trend analysis of the cash flow statement for the years 2016 and 2017:

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According to AASB 107, the organisations prepare the cash flow statement as a
component of the basic financial statements (Aasb.gov.au 2018). The statement could be
segregated into operating activities, investing activities and financing activities. The operating
activities include those activities from which revenue is made in the normal business course like
from the suppliers and the customers. The investing activities include those activities related to
disposal as well as acquisition of non-current assets and other similar investments identical to
cash. On the other hand, financing activities include those activities having the ability of
changing equity capital and borrowing structure of the organisations (Ball et al. 2016).

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In accordance with the above table, it could be stated that Woolworths Group Limited is
recovering amounts from the debtors at a faster rate, as it has increased slightly by 0.26%
(Woolworthsgroup.com.au 2018). The reason is due to the negative cash cycle period for which
it has maintained its liquidity position in the market. In addition, due to this reason, the
organisation has started to extend its payment terms, as the amounts owed from the debtors are
not collected timely. The organisation had an amount of US$100 million, which has been hedged
entirely at AU$127 million has matured in April 2015 (Woolworthsgroup.com.au 2018). The
excess amount has been paid with the help of the cash flows generated. It has acquired Ezibuy
and the other capital expenditures signify that the organisation possesses the capability of
generating strong cash flows at time investment is made in future growth.
Woolworths Group Limited has operating cash flows before interest tax and this has
increased by 32.43% in 2017. This has been affected by the timing of the payments of the
creditors, which were relative to the reporting dates. On the other hand, the organisation has
invested amounts in purchasing long-term assets due to which the overall debt burden of the
organisation has increased. The tax amount of the organisation has fallen in 2017 due to change
in the Australian legislation, which was effective from 2014. According to the legislation, the
income tax payments could be incurred either monthly or quarterly (Lewellen and Lewellen
2016). The cash has been utilised in the investment activities that has increased by 13% in 2017.
In addition, Woolworths has generated lower proceeds from its fixed assets by 61.25%, as they
are kept unutilised by the organisation.
Despite the rise in operating cash flows of Woolworths Group Limited, it was not enough
to offset the cash drained out of investing activities and financing activities. Even though
improvements could be observed in cash and cash equivalents; however, after the effect of

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changes in exchange rate in foreign currency, reduction in this item could be observed by
28.30%. As a result, this has resulted in decline in cash and cash equivalents at the end of the
year by 4.11% and hence, it needs to minimise its spending on investing and financing activities
for retaining adequate cash in hand to invest in future business operations.
Question 2: Telesmart Limited
To,
Sharon Whitmore,
The Chief Executive Officer,
Telesmart Limited
Subject: Evaluation of the three proposals

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Date: 31/08/2018
The report is intended to depict the effect and benefits of three alternatives proposed by
the different personnel working in the organisation. The critical analysis of each of these
proposals is depicted briefly as follows:
Proposal of the production manager:
Based on the provided information, it could be identified that Aaron Jacobsen is the
production manager of Telesmart Limited. The individual has proposed to conduct quality
improvements in the product by raising the variable costs by $28 per unit. This could be
supported by the figures in the above table. If this proposal is adopted, the profit level of the
organisation would increase by $148,000 due to the change in existing profit margin from
$240,000 to $388,000. However, in order to experience this rise in profit, the organisation is
needed to incur $30,000 additional amount on advertising campaign and the sales volume would
increase by 30% as well and it needs to sell 4,670 units, which is 670 units higher than the
existing plan to achieve break-even.
However, it is to be borne in mind that if the advertising campaign could not fulfil the
intended organisational objectives by drawing customer attention, the risk level would rise
significantly (Collier 2015). The adverse impact would be the downfall in the profit level of the
organisation and it has to bear the additional burden of advertising expense. For dealing with this
scenario, it might mandate the need for the organisation to raise its selling price per unit and
thus, the additional cost burden would be transferred to the customers (Noreen, Brewer and
Garrison 2014). This is further supported by the margin of safety obtained as 28%, which is 8%

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more than the existing plan. This implies that the sales revenue might decline by 28%, if the
proposal does not move in line with the intended plan.
Proposal of the sales manager:
It could be identified from the provided information that Joanne Arnett is the sales
manager of Telesmart Limited. The individual has put forward a proposal of increasing selling
price per unit by $60 due to which there would be reduction in sales volume by 10% from the
existing levels. For this, the individual has proposed to incur additional amount of $50,000 in the
form of advertising campaign. If this proposal is implemented, the profit would increase by
$100,000 to $340,000 in contrast to the existing plan and since there would be minimisation in
sales volume, the organisation needs to sell at least 3,367 units for avoiding loss. Moreover, the
margin of safety is obtained as 25%, which implies the fall in sales revenue in case of failure of
the proposal.
In this case, the motive is to provide the customers with a unique product, which is not
popular in the market (Hartley 2014). If the product gains popularity, it would provide long-term
benefits to Telesmart Limited, as the customers would be involved in repeat purchases. However,
if the product does not contain adequate attributes worth the price, the burden of cost would rise
and fall in profit level is obvious (Lev and Gu 2016).
Proposal of the marketing director:
The provided information states that Jennifer Saunders is the marketing director of
Telesmart Limited. The individual has suggested offering a rebate of $30 on the first 1,500
phones sold. This is because the individual believes that this strategy would help in increasing
sales volume by additional 1,000 units from the existing plan. However, for ensuring the success

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of the plan, the organisation is needed to spend additional $60,000 on advertising expenses. By
taking into consideration the various aspects of the proposal, it has been found that the net
operating income of Telesmart Limited would increase by $135,000 from the existing plan.
However, it needs to sell a minimum of 4,533 units so that it could place in no-profit-no-loss
situation.
This particular strategy has the ability of creating adverse repercussions on the
organisation in the long-run. The reason is that if the product prices fall and then suddenly rise,
negative perceptions would be created in the minds of the customers (Keune and Keune 2018).
This is because they might feel that they are overcharged for the products purchased from the
organisation. Hence, this might limit the revenue generation capacity of the organisation by 24%,
as evident from the calculated margin of safety (Fields 2016).
Question 3: FreeWheels Limited
Requirement 1(a):

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Requirement 1(b):
Requirement 2:
Based on the provided information, it could be observed that the yearly capacity of the
factory of FreeWheels Limited is 100,000 units. In the current scenario, the organisation is
manufacturing 6,000 units per month, which implies a total of 72,000 units per annum. Cycle
World Limited has approached the organisation to deliver 25,000 bikes as a one-off special
order. This implies that the organisation has the capacity of accommodating additional 28,000
orders. Therefore, FreeWheels Limited could sell bikes at variable cost and the calculated mark-
up, which is obtained as $240. In this case, fixed costs are not considered, since they are not
deemed to be relevant (Khan 2015).
However, certain qualitative factors need to be taken into consideration before accepting
this special order. One of these factors is morale, which is the effect on employee morale of
including a break room in the production area. Moreover, the investor opinions need to be sought
before accepting any special order, as they play a crucial role in raising funds for the business
(Loughran and McDonald 2016). Furthermore, it is possible to use somewhat cheaper elements
in manufacturing bikes. However, if this practice is increased heavily in the production of bikes,

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it might lead to an overall impression of minimised quality. As a result, the customers might not
be willing to buy products from the organisation in future.

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References:
Aasb.gov.au., 2018. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB107_07-04_COMPjun09_01-09.pdf
[Accessed 29 Aug. 2018].
Ball, R., Gerakos, J., Linnainmaa, J.T. and Nikolaev, V., 2016. Accruals, cash flows, and
operating profitability in the cross section of stock returns. Journal of Financial
Economics, 121(1), pp.28-45.
Collier, P.M., 2015. Accounting for managers: Interpreting accounting information for decision
making. John Wiley & Sons.
Fields, E., 2016. The essentials of finance and accounting for nonfinancial managers. Amacom.
Hartley, W.C., 2014. An introduction to business accounting for managers. Elsevier.
Keune, M.B. and Keune, T.M., 2018. Do Managers Make Voluntary Accounting Changes in
Response to a Material Weakness in Internal Control?. Auditing: A Journal of Practice &
Theory, 37(2), pp.107-137.
Khan, M., 2015. Accounting: Financial. In Encyclopedia of Public Administration and Public
Policy, Third Edition-5 Volume Set. Routledge.
Lev, B. and Gu, F., 2016. The end of accounting and the path forward for investors and
managers. John Wiley & Sons.
Lewellen, J. and Lewellen, K., 2016. Investment and cash flow: New evidence. Journal of
Financial and Quantitative Analysis, 51(4), pp.1135-1164.
Loughran, T. and McDonald, B., 2016. Textual analysis in accounting and finance: A
survey. Journal of Accounting Research, 54(4), pp.1187-1230.