Question 1 (5 marks)

Solution 1:

The estimated time period in which the company makes all the payments and receives all the payments is known as the cash cycle period (McLaney & Adril, 2016). The cash cycle is calculated by adding the inventories period and debtor’s period and then subtracting the creditors period.  A shorter cash cycle is always preferable. It helps to know about the liquidity position of the company. It is very important for the company to maintain adequate levels of liquidity as lack of liquidity or availability of huge liquidity might hamper the workings of the company. It has a direct impact on the financial performance and position of the company (Seal, 2012).

The following table shows the data that has been used to calculate the cash cycle period:

The calculation of the cash cycle is shown below:

There has been an increase in the cash cycle from the year 2014 to 2017 but it has been observed that in current year the cash cycle has become shorter when compared to the previous year (Horngren, 2012). A shorter cash cycle is considered to favourable for the company. A cash cycle of 48 days means that the cash is usually settled in the span of 48 days.

It is observed from the financial statements that the cash from operating activities has declined to $58564 from $70221 in the recent two years which shows that the company’s performance declining (Holtzman, 2013).  However, the company might be observing a growth opportunity in the future because we can see that the company has spent a lot of money in doing investments. The cash inflow from investing activities in the year 2017 was $ 138110 but this year the amount is in negative which shows that the company has made huge investments.

Solution 2:

The financial data that has been provided to us are as follows:

Proposal 1:

Alternative 2:

Alternative 3:

The primary objective of the company is to earn higher profits. So, it is easily understandable that the management will opt for the alternative which will help to generate the highest profits ( Datar, 2015). Therefore, the management must go for the alternative provided by Jennifer and this decision can be supported by the calculations done earlier.

The company has to take decision based on both qualitative as well as quantitative factors. On the basis of quantitative factors the company must opt for the alternative which has minimum cost and highest profits but on the basis of qualitative factors a company has to look upon various matters such as the satisfaction of the customers and the employees, long term impact on the reputation of the company and will the acceptance of such project will lead to long term success or not (Datar, 2016).Solution 3:

Part 1.

(a)

The bid price calculated in this alternative is $ 140 unit per unit.

(b)

The bid price calculated in this alternative is $ 191.8 unit per unit.

Part 2.

The annual capacity to produce bikes of the company is 100000 units per annum but only utilises a capacity of 72000 units per annum. So, there is still a capacity of (100000-72000) i.e. 28000 units left behind (Atkinson, 2012). The company will not have to spend any additional amount as capital investment if it accepts any order that is equal to or less than 28000 units. In the given scenario provided to us, it is observed that the company has got an offer to produce more 25000 units. Since, the company has a spare capacity of 28000 units so it should accept the offer as it will have to incur only variable costs (Boyd, 2013). The management should not charge below $140 per unit for these 25000 units which are additionally produced.

References

Atkinson, A. A. (2012). Management accounting. Upper Saddle River, N.J.: Paerson.

Boyd, W. K. (2013). Cost Accounting For Dummies. Hoboken: Wiley.

Datar, M. S. (2015). Cost accounting. Boston: Pearson.

Datar, S. (2016). Horngren’s Cost Accounting: A Managerial Emphasis. Hoboken: Wiley.

Holtzman, M. (2013). Managerial Accounting For Dummies. Hoboken, NJ: Wiley.

Horngren, C. (2012). Cost accounting. Upper Saddle River, N.J.: Pearson/Prentice Hall.

McLaney, E., & Adril, D. P. (2016). Accounting and Finance: An Introduction. United Kingdom: Pearson.

Seal, W. (2012). Management accounting. Maidenhead: McGraw-Hill Higher Education.