Analysis of Credit Card Scheme for Felicity Flower Pty Ltd

This report presents a financial analysis of a proposed credit card scheme for Felicity Flower Pty Ltd. The analysis examines the impact of the scheme on costs, interest earnings, and overall profitability. The report includes detailed calculations of average credit and collection costs, interest earnings forgone, and credit sales and collection costs. It also provides a comparison of costs before and after the introduction of the credit card scheme, highlighting potential benefits such as reduced expenses and increased revenue. The conclusion recommends that Felicity Flower implement the credit card scheme to improve financial performance. The report includes workings notes to show how the calculations were made. The report also discusses non-financial qualitative factors that should be considered. The student's work is made available on Desklib, a platform for AI-powered study tools.

Decision analysis- Credit or
not

Executive summary
The decision making in the business is essential as it helps company to channelise funds
effectively. As such, Felicity Flower Pty Ltd is planning to implement strategies regarding credit
card scheme which will be deployed and interest will be earned consecutively. This will help
company to earn income and utilise the same in operational activities.

TABLE OF CONTENTS
QUESTION A..................................................................................................................................1
INTRODUCTION..................................................................................................................1
MAIN BODY.........................................................................................................................1
CONCLUSION......................................................................................................................2
QUESTION B..................................................................................................................................2
INTRODUCTION..................................................................................................................2
MAIN BODY.........................................................................................................................3
CONCLUSION......................................................................................................................3
QUESTION C..................................................................................................................................4
INTRODUCTION..................................................................................................................4
MAIN BODY.........................................................................................................................4
CONCLUSION......................................................................................................................5
QUESTION D..................................................................................................................................6
INTRODUCTION..................................................................................................................6
MAIN BODY.........................................................................................................................6
CONCLUSION......................................................................................................................6
REFERENCES................................................................................................................................9
BIBLIOGRAPHY .........................................................................................................................10

QUESTION A
INTRODUCTION
In the present task the presentation will be relevant with adjusting the average credit and
collection costs in accordance with analysis the net credit sales. Therefore, the measurement will
be base on the dollars and the percentage forms.
MAIN BODY
Average credit/ collection costs in dollars and percentage
Particulars % 3 years average amount
Monthly
average
Average monthly accounts receivables 40000
Annual credit sales 1350000 37500
collection costs paid to agencies 8000 666.67
Invoicing and collection costs 0.54% 7290 607.5
Net average cost collection 3.19% 15290 1274.17
Interpretation:
The above table shows that values can be seen about felicity flowers. The monthly
average cost is calculated in the above table. It can be seen in the above table average monthly
accounts receivable is 40000 and annual Monthly credit sales for 36 months is 37500. Besides
this, average cost is around 1274.17 which is monthly cost. The average cost of collection is
much more than the profit and as such, it is highly expensive for the firm (Mohit, Amin and
Biswas, 2017). This is not good and it can be interpreted that expenditures exceed costs which is
bad for the Felicity flowers.
In addition to this, bad debts are also more which ultimately reflects that expenses are
more than revenue. Hereby it can be conveyed that risk of bad debts is more and thus, overall
efficiency and profitability of Felicity flowers are hampered which is not adequate as overall
profitability and efficiency of organisation will be minimised and as such, it is not a good sign.
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In simple words, bad debts are likely to occur and thus, profitability position will be affected
negatively (Kaeding, Schmälter and Klika, 2017).
The net average cost collection on monthly basis is 3.19 % which conveys that total
profits are not good. In addition to this, maintaining credit sales in the period of economic crisis
or recession is also not effective way as in the same period, profitability position of Felicity
flowers may be even deteriorated than it is at present. In simple words, it can be interpreted that
company will have more adverse effect in economic crisis period and eventually will lead to
decrease in profits as well (Upade).
Workings Note:
Monthly annual credit sales
workings Amount
annual credit sales 1350000
3 years average as per month 36
monthly credit sales 37500
Monthly invoicing and payments to accountant:
workings Amount
collection costs paid to agencies 8000
monthly payments to accountant 8000/12
Total monthly payments 666.6666666667
Invoicing and collection costs 7290
monthly invoice 7290/12
Total monthly invoice 607.5
CONCLUSION
Hereby it can be concluded that in the event of economic crisis profitability aspect will
get reduced of Felicity flowers and to remove this it is required that company should make credit
sales in effective manner so that overall cash can be recovered in effectual manner. It is also
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concluded that overall efficiency of firm will get affected if credit customers do not pay within
timely manner.
QUESTION B
INTRODUCTION
The presentation will be relevant with the cost of interest earnings forgone as per the
introduction of credit cards.
MAIN BODY
Interest earning forgone before introduction of credit cards
Interest rate % 3 years average amount
Monthly
average
Average monthly accounts receivables 40000
Annual credit sales 1350000 112500
monthly average cash surplus 72500
Interest rate 7.00% 5075
Net average interest rate gained 5075
Working Notes:
Monthly credit card sale:
workings Amount
Annual credit sales 1350000
monthly sales credit 1350000/12
Total monthly credit sale 112500
CONCLUSION
It can be concluded that above table depicts overall interest that might be earned in such
scheme. Felicity flowers might receive overall interest by applying this scheme. Average
monthly accounts receivable at the interest rate of 7 % is likely to be 40000. The overall interest
will be earned by Felicity flowers is 5075 at 7 %. In addition to this, after computation of 3 years
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average sales, the annual monthly credit sales for one year is 112500 which is good source of
revenue on an average of 3 years.
The scheme depicts that on this annual credit sales, the revenue will be generated around
72500 which is overall good and productivity of Felicity flower will be maximised in the best
possible way. In simple words, organisation will be benefited as huge surplus amount will be
produced and overall efficiency and profitability will be maximised quite effectively by
deploying interest scheme on credit sales monthly (Noonan and et.al., 2017).
Felicity flowers will be benefited by such interest scheme. As such, overall monthly
interest will rouse to 5095 at 7 % interest rate. The company will get benefited as monthly
interest generated within the scheme is surplus. This will be beneficial for the company as
overall sales will be injected and interest will be earned effectively (Leong and Howlett, 2017).
This will help company to increase productivity and efficiency will be maximised in effectual
manner. The information provided by Daniel will be generated after applying the credit card.
Thus, firm will be benefited by such scheme as automatically revenue will be earned by it in
effective manner.
Moreover, Felicity flower will earn complementary benefits as well such as account
holder's insurance which are unauthorised transaction, extended warranty insurance for business
goods and many more. As a result, company will be benefited overall by such scheme as extra
income will be earned with much ease (Carlin, Jiang and Spiller, 2017). Moreover, this extra
income earned will be utilised for future activities of company so that operational activities are
achieved in the best possible way with much ease.
Felicity flower will get revenue so that functions may be carried out in the easiest way.
Moreover, the benefits may be attained like simplicity in tax payments to taxation authorities by
using credit card usage. Hereby it can be concluded by analysing the calculation table that
interest will be adequately earned by Felicity flower by deploying such interest scheme. As such,
it will gain extra income on monthly basis and this will be utilised in effective manner and thus,
day to day activities will be achieved by it.
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QUESTION C
INTRODUCTION
The presentation will be relevant to credit card sales and collection costs of carrying
accounts receivables by Felicity flower and thus will guide to be effective in carrying out
activities.
MAIN BODY
Credit sales of credit and collection costs of carrying accounts receivables
Interest rate %
3 years average
amount
Monthly
average
Average monthly accounts receivables 40000
Annual credit sales 1350000 112500
Add: Interest gained 7.00% 72500 5075
Cost of accounting for accounts receivable
payments to the accountant 19000 1583.33
sales of credit cards 4.00% 54000 4500
Invoice and collection costs 0.54% 7290 607.5
Net credit sales of credit and cost of
collection 1.44% 80290 1615.83
collection costs on monthly basis %
3 years average
amount
Monthly
average
Average monthly accounts receivables 40000
Annual credit sales 1350000 112500
Cost of accounting for accounts receivable
payments to the accountant 19000 1583.33
collection costs paid to agencies 8000 666.67
Bad debts 1.25% 16875 1406.25
Invoicing and collection costs 0.54% 7290 607.5
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Net cost of carrying out the cost of
accounts receivables 3.79% 51165 4263.75
CONCLUSION
Hereby it can be concluded that different kinds of costs and expenses may be evaluated
by looking at such table. The sales of credit card on three years average comes to 54000 which is
calculated at the rate of 4 %. In relation to this, monthly average comes at the same rate is 4500.
The same cost is decreased and it can be said that firm will be profitable as revenue is more than
the expenditures. The above calculation shows that company should apply this credit card
scheme as this will provide good interest income and as a result, automatically more revenue
may be generated (Chiclana and et.al., 2017.). This will eventually make fewer expenditures and
led to more profits at its disposal. The company should deploy credit card scheme as it will
provide with more profits at its hand.
Furthermore, by looking at the table, net cost of carrying out the cost of accounts
receivables is 3.79 % and shows that company has on average of 3 years sales amount as 51165
and at the same rate, monthly sales average comes out at 4263.75. As such, it shows that
company should carry out the credit card scheme as it will generate adequate amount of interest
and as such, Felicity flower will be benefited by such credit card scheme (Lepri and et.al., 2017).
It should adopt the scheme as it will be beneficial for the organisation in the best possible way. It
will get more benefits as depicted by Daniel in effectual manner. Credit sales will generate
adequate amount of profit to Felicity flower organisation. Hereby it can be concluded that
organisation should adopt credit card scheme as it will reduce the cost and eventually led to more
profits which is the basic need of every business (Lent and et.al., 2017). Thus, it will make
organisation profitable as cost will be minimised and productivity will be maximised in effective
way.
QUESTION D
INTRODUCTION
There will be recommendation based on the analysis which were relevant with facilitating
their credit card services to the consumers over selling credit. On the other side there will be
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calculations relevant with the non- financial qualitative factors which are need to be considered
by the firm. However, Felicity flowers Pty Ltd professionals will be recommended to proceed the
credit sales as per the cost analysis over such products.
MAIN BODY
In consideration of the costs measurements over the credit cards scheme of the Felicity
Flower Pty Ltd it can be said that with the help of such scheme the firm will only have execution
over the reduction of debts and expenses on cost collection (Mullen and Reutzel, 2017).
Therefore, in accordance with the reduction of the cots the firm will become able to enhance the
profitability and revenue generation as well as increment in interest earnings. Thus, that will be
beneficial for the organisation in terms of having the appropriate cash balance that will be
utilised in the operational activities of the firm. The cost collection which may have increment in
the expenditures of around 4263.75 as per average of months while implication of the credit card
scheme will help in reduction of expenditures which will be approximately 1615.83. Therefore, it
will be recommended to the officers of this organisation that the implication of credit card
scheme will help the firm in reducing the expenses as well as have the proper interest earning
over the credits or loans facilitated to the consumers (Save and et.al, 2017). Further, it can be
said that such improvements will be helpful in terms of enchaining firm's liquidity, profitability
and the performance in the long run and they will be able to make appropriate efforts in the
operational aspects
CONCLUSION
In consideration with the research conducted by Daniel Wiseman the accountant at Felicity's
Flower Pty Ltd as on the implication of the credit card facilitated which do not have any impacts
over the use of non- financial qualitative factors. However, these elements will help the
organisation in terms with increment in the sale as well as creating the challenging environment
for the other competitors of rivalries of the entity. Thus, it can be said that the frequency changes
in the firm's policy may affect the productivity and performance of the organisation which will
eventually have the negative impacts over the revenue generation of the firm. Thus, in
accordance with such variations the business will have negative impacts over the brand image
and consumer retention. There has been various non-financial qualitative factors which helpful in
terms of raising the company's revenue generation as well as profitability such as:
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Firm's reputation : As per the non-financial qualitative factors of the firm it can be said
that, the officer in the firm must have adequate attention or focus over the brand image in the
market. The changes in the policies will have the positive as well as negative impacts. Thus, such
factors are need to be analyse as well as measured by the professionals. Here the managers are
planning to implementing the credit card scheme over the credit sales. It can be said that
managers need to make perfect surveys over the market as well as analyse the consumer
requirements and that will help them in designing the products as per consumers desires.
Creditors Effects : The creditors are provided information which is not released to
public. There are some information which are revealed to public but it is revealed the same to
creditors so that they may be able to take better and effective decisions with much ease. The
piece of information revealed to creditors are opening and closing stock of plants, information
regrading management turnover and many other factors. The credit card scheme implementation
will help firm to have a positive effect on firm's revenue and as such, it will help to greater
productivity of workers and as such, loans can be taken by company as interest income earned
can be utilised in the best possible way. Thus, firm will be benefited as loan will be granted by
creditors on easier terms and conditions. Eventually, brand image and brand value will be
enhanced in a better way. These non-financial qualitative factors will help company to have
positive impact.
Quality : Quantitative factors ignores several qualitative factors which is essential for the
company to take into account the same. This involves factors such as brand image, value of
company or brand value, reputation of the concern are the essential and vital factors which are
ignored by quantitative factors. The implementation of credit card scheme will help company to
have increased profits as cost will be reduced too much extent. As such, Felicity flower will have
adequate amount of profit and as a result, it will have larger customers subscribing to the credit
card scheme. This will help company to have increase in sales and satisfying consumers at large
basis with much ease.
Moreover, if frequent changes in policies are made then, firm loses productivity which
leads to decrease in profits to it. Furthermore, company should implement fixed policies so that
overall productivity is not hampered as frequent changes affects quality as well. The qualitative
factors should be taken into account by Felicity flower and this will provide with enormous
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profits as productivity will be maintained in effective manner. To reduce cost, it is essential for
the company that by reducing such, quality is maintained adequately. Thus, credit card scheme
will be profitable to company as interest income will be earned adequately as well. So, Felicity
flower should implement the scheme at the cost and fruitful results will be obtained by it in the
best possible manner.
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