Analysis Of Telesmart Ltd And Suggestions To Increase Profitability

Cash Conversion cycle has been presented here-in-below:

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Cash Conversion Cycle

Sl No

Particulars

2017 (Anon., 2017)

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2016

2015 (Anon., 2015)

2014

2013 (Anon., 2013)

1

Inventory Turnover Period

58.36

60.57

59.95

60.05

63.34

2

Debtors Turnover period

32.03

30.71

31.41

36.15

43.46

3

Creditors Turnover Period

40.99

39.32

40.20

46.16

55.38

4

Cash Conversion Cycle

49.40

51.96

51.16

50.04

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.

Anon., 2013. JB HI-FI.

Anon., 2015. JB HI-FI. 

Anon., 2017. JB HI-FI