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ACC00724 Accounting For Managers Assignment

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ACC00724 Accounting For Managers Assignment

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ACC00724 Accounting For Managers Assignment

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Course Code: ACC00724
University: Southern Cross University is not sponsored or endorsed by this college or university

Country: Australia

Question 1 
Refer to the company you studied for Assignment one. Using some of the information you gleaned there, as well as additional information, calculate the cash cycle period for each of the five years. Then, reviewing the Statement of Cash flows for the most recent two years, evaluate the trends of overall cash flows, but particularly those related to cash flows from operating activities.
Question 2
Telesmart Ltd. manufactures a high end smart phone with dual sim cards that is popular with young travelers. Related financial data for this product for the last year is as follows:
 Sales 5,000 units Selling price $420 per unit Variable manufacturing cost $144 per unit Fixed manufacturing costs $460,000 Variable selling and administrative costs $36 per unit Fixed selling and administrative costs $500,000.The CEO is under pressure from the Board of Directors to increase the profitability of the phones and has asked executives from different departments for suggestions. Three managers have responded with the following ideas:
a) The production manager, Aaron Jacobsen, suggests making improvements to the quality of the product. These quality improvements would increase the variable costs by $28 per unit. This would be accompanied by a $30,000 national advertising campaign which he expects would boost sales volume by 30%.
b) The sales manager, Joanne Arnett, believes that the product is unique, but not yet well known enough. Based on her market research, she feels that advertising should be increased by $50,000 and that the product would also be able to bear an increase in price of $60 with sales volume reduced by 10% from the current levels.
c) The marketing director, Jennifer Saunders, wants to undertake a promotion campaign where a $30 rebate is offered to the first 1,500 phones sold. She expects that the rebate program would boost sales by an additional 1,000 units if spending on advertising was increased by $60,000.
Cash Flow From Operating Activities – This has declined in FY2017 by about $1million which could be attributed to the higher tax outflow in FY2017 by about $2.2 million when compared to FY2016. Receipts from customers have shown a robust increase in FY2017 but these gains have been nullified by corresponding surge in payments to suppliers and employees (RFG, 2017).
Cash Flow from Investing Activities – There is an increase in the outflow from investing activities by about $ 70 million in FY2017 compared to previous year. This is on account of higher outflow on purchase of PP&E. Also, there has been an outflow to the tune of $ 67 million in FY2017 owing to business acquisition (RFG, 2017).
Cash Flow from Financing Activities – In FY2017, there is a cash inflow of $ 31.9 million as compared to outflow of $ 32.2 million in FY2016. The main reason for the same is the proceeds from equity issue to the tune of $ 35.6 million (RFG, 2017). 
Proposal 1
It focuses on improvements in quality by having $ 28 incremental variable cost per unit. Besides, with advertisement spent increasing by $ 30,000, a 30% sales volume increase is expected.
Only with a 20% increase in sales, the profit shows some significant increase.
Assume X is the break even volume of sales required to generate the current profit of $ 240,000. 
Qualitative factors are listed below (Damodaran, 2015).

Presence of spare capacity to accommodate the increase in production
Additional resource allocation to current product or development of new product for competitive edge over competition. 

Proposal 2
Unit price is increased to the tune of $ 60 through higher advertisement expenses of $ 50,000 leading to lower volume sales by 10%.
Proposal 2 Profits > Existing profits
However, it is imperative to consider the impact of higher sales decrease than anticipated through the use of sensitivity analysis as indicated.
A higher decrease in sales than anticipated can clearly adversely impact the profit.
Assume X is the break even volume of sales required to generate the current profit of $ 240,000. 
The margin of safety is quite thin for this proposal which makes it quite risky. Qualitative factors are listed below (Petty et. al., 2015).

It may reduce the customer base along with market share.
The company may face greater competition from low cost manufacturers.
Also, the customer preferences need to be considered. 

Proposal 3
The proposal involves a promotional campaign which involves that initial 1500 mobile phones have a discounted price of $ 390. However, if an advertising expense of $ 60,000 is also taken, then a higher sales volume of 6000 units (i.e. 1000 units increase) would be generated. 
Qualitative Analysis
Proposal 3 Profits > Existing profits
However, it is imperative to consider the impact of lower sales increase than anticipated through the use of sensitivity analysis as indicated.
Clearly even if proposed sales increase halves to 500 units, then also, incremental profits are earned as compared to original plan.
Assume X is the break even volume of sales required to generate the current profit of $ 240,000
Qualitative factors are listed below (Arnold, 2015).

Discounted price may initiate a price war with competitors and hence raising rates later may be an issue.
The presence of idle capacity for ramping up production is necessary.

Question 3
1a) The monthly production is 6000 units thus implying an annual production of 72,000 units. The given firm capacity is given as 100,000 units and hence no cuts would have to be taken to accommodate special order.
As no new capacity is being set up, hence incremental fixed cost for special order is zero. Also, amongst the variable cost, owing to direct order, no selling and administrative expenses would arise (Brealey, Myers and Allen, 2014). 
On the current orders, the company applies 100% mark up and hence the same is extended here leading to quotation per unit of 120*2 = $ 240.
Quotation for the special order = 25000*240 = $ 6,000,000

b) Now owing to production capacity being 90000, for special order acceptance, the current supply to customers would have to be curtailed.

Reduced supply to current customers = 90000 -72000 + 25000 = 7,000
Compared to the previous case, in this case the company would bear some loss of profit as the profit arising from selling directly to customers is higher than the corresponding profitability in special order. Also, the variable selling and administrative cost on 7000 units would be saved amounting to (7000*25) = $175,000
Differential profits = 185 -120 = $ 65
Total loss of profits owing to special order = 65*7000 = $ 455,000
Therefore, final quote = $600,000 – $175,000 + 455,000 = $ 628,000 

The special order quote is based on namely two parameters, incremental cost per unit and markup applied. It is essential that no fixed cost would be considered since for making the special order, no incremental capacity is required. Also, since the order is directly sourced, no administration and selling costs are incurred. Thus, after computation of production costs, a mark-up of 100% as per the current practice of company is applied for reaching the quote amount (Arnold, 2015).


Higher capacity utilisation leading to greater profit generation.
The order from Cycle World is potentially a beginning to receive bigger orders in the future.
The company can market products to Cycle World customers and hence enhance sales further.


The profitability is adversely impacted since profit per unit is lower on special order than direct client.
Increased dependence on Cycle World can limit the attention the company gives to direct customers and thus increase concentration risk.

Arnold, G. (2015) Corporate Financial Management. 3rd ed. Sydney: Financial Times Management.   
Brealey, R. A., Myers, S. C., & Allen, F. (2014) Principles of corporate finance, 2nd ed. New York: McGraw-Hill Inc.
Damodaran, A. (2015). Applied corporate finance: A user’s manual 3rd ed. New York: Wiley, John & Sons.
Petty, J.W., Titman, S., Keown, A., Martin, J.D., Martin, P., Burrow, M., & Nguyen, H. (2015). Financial Management, Principles and Applications, 6th ed..  NSW: Pearson Education, French Forest Australia
RFG (2017) Annual Report 2017, [Online] Available at [Accessed September 8, 2018] 

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