Scenario 1: Calculating Cash Cycle and Evaluating Cash Flows for Woolsworth Group

1: Taking the data for the latest annual report of Woolsworth group, we have calculated the cash cycle of the company for the last five years:

Particulars	2018	2017	2016 Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	2015	2014	2013
Inventory	4,233.00	4,080.40	4,558.50	4,872.20	4,693.20	4,205.40
Debtors	894.00	816.80	849.80	1,001.90	965.20	985.20
Creditors	5,316.00	5,068.20	4,809.10	5,040.00	4,588.40	4,080.00
Cogs	40,017.00	39,546.10	38,309.30	42,596.60	44,295.20	42,754.90
Sales	56,726.00	55,475.00	53,473.90	58,812.00	60,772.80	58,516.40
Average Inventory	4,156.70	4,319.45	4,715.35	4,782.70	4,449.30	2,102.70
Average Debtor	855.40	833.30	925.85	983.55	975.20	492.60
Average Creditor	5,192.10	4,938.65	4,924.55	4,814.20	4,334.20	2,040.00
Inventory Turnover	37.91	39.87	44.93	40.98	36.66	17.95
Debtor Turnover	5.50	5.48	6.32	6.10	5.86	3.07
Creditor Turnover	47.36	45.58	46.92	41.25	35.71	17.42
Cash Cycle	-3.94	-0.23	4.33	5.83	6.81	3.61

Cash cycle is the time period in which the business makes and receives payment from its creditors and debtors. (Ittelson, 2009) Cash cycle include the time taken to recover cash form inventories, debtors net of payment made to creditor (McLaney & Adril, 2016)s. Lower the cash cycle better is the cash movement. We can see that the company has a very cash cycle, which indicates high liquidity. This is good for the company.

The cash flow statement of the company depicts that the net cash flow for the company has increased to $360 million from negative $38 million. The cash flows from operating activities show a major decline in outflow of cash towards financing cost. But since the company has made higher payments to its creditors in the current year the overall cash from operating activities of the company has declined from $ 3122 million to $ 2930 million. Also there has been a lower cash outflows from investing and financing activities of the company from last year which have contributed towards higher net cash inflow.

2: Following is calculation of profits for the company under various alternatives:

Financial data from last year
Sales	5000
Selling price	420
Variable manufacturing cost	144
Fixed manufacturing costs	460000
Variable selling and administrative costs	36
Fixed selling and administrative costs	500000

Profit statement (under current circumstances)
Particulars	Amount
Sales	21,00,000
Less:
Variable manufacturing cost	7,20,000
Fixed manufacturing costs	4,60,000
Variable selling and administrative costs	1,80,000
Fixed selling and administrative costs	5,00,000
Profit/Loss	2,40,000

Alternative 1
Sales	6500
Selling price	420
Variable manufacturing cost	172
Fixed manufacturing costs	460000
Variable selling and administrative costs	36
Fixed selling and administrative costs	500000
Advertisement charges	30000
Profit statement
Particulars	Amount
Sales	27,30,000
Less:
Variable manufacturing cost	11,18,000
Fixed manufacturing costs	4,60,000
Variable selling and administrative costs	2,34,000
Fixed selling and administrative costs	5,00,000
Advertisement charges	30,000
Profit/Loss	3,88,000

Under this alternative, we see that the company will earn higher profits than expected. Expending extra on advertisement expenses will help the company earn profits higher by $148000.

Alternative 2
Sales	4500
Selling price	480
Variable manufacturing cost	144
Fixed manufacturing costs	460000
Variable selling and administrative costs	36
Fixed selling and administrative costs	500000
Advertisement charges	50000
Profit statement
Particulars	Amount
Sales	21,60,000
Less:
Variable manufacturing cost	6,48,000
Fixed manufacturing costs	4,60,000
Variable selling and administrative costs	1,62,000
Fixed selling and administrative costs	5,00,000
Advertisement charges	50,000
Profit/Loss	3,40,000

Under the second alternative, we see that the company is expected to earn higher profits than the normal circumstances. Increase in the advertisement expense and sale price will help the company earn $100000 more than normal.

Alternative 3
Sales	6000
Selling price	420
Variable manufacturing cost	144
Fixed manufacturing costs	460000
Variable selling and administrative costs	36
Fixed selling and administrative costs	500000
Rebate	45000
Advertisement charges	60000
Profit statement
Particulars	Amount
Sales	25,20,000
Less:
Variable manufacturing cost	8,64,000
Fixed manufacturing costs	4,60,000
Variable selling and administrative costs	2,16,000
Fixed selling and administrative costs	5,00,000
Rebate	45,000
Advertisement charges	60,000
Profit/Loss	4,80,000

Under this alternative the company will earn the highest level of profits. The proposal of providing rebate and advertisement expense will help the company earn double profits than expected.

From the above data we can see that all the alternatives will help the company earn higher profits than the normal level. While evaluating the pricing policy of a product, not only quantitative but all the other qualitative factors should also be taken into consideration. Taking the quantitative factors, the alternative with the highest profits should be considered, that is the thirds alternative proposed by Jennifer should be opted for. The other qualitative factors which should be taken care of while evaluating the pricing policy include quality of a product. In order to increase the profitability of the company, many times the management compromises with the quality of the product. Quality of a product should be compromised with. In order to improve the profitability of a product it is important that a proper campaign for promotion ne conducted for the product. Creating aware née for the product will help increase sales which will assist in increased profitability.

a. Given the annual production capacity of 100000 units, the company will have a spare capacity to produce 28000 units. The special order proposed to the company includes production of 25000 units. Since the company has spare capacity of 28000 units, it can take up the special order as it will help the company generate extra revenue. Therefore, the bid price which should be charged should be minimum $140 per unit.

Cost statement for special order
Direct Material Cost	1875000
Direct Labour Cost	875000
Variable Factory Overhead	250000
Fixed Factory Overhead	500000
Total Manufacturing Cost		3500000
Units		25000
Bid Price		140

b. If the company has the total capacity of 90000 units annually, and it has an annual demand of 72000 units, then it leaves the company with a spare capacity of 18000 units. Since the special order comprises of 25000 units, the company can either compromise with the normal demand or reject the order. The management can also propose to provide 18000 units to the buyer. But hampering the normal demand in order to take up the special order will not be an

Cost statement for special order
Direct Material Cost	1875000
Direct Labour Cost	875000
Variable Factory Overhead	250000
Fixed Factory Overhead	500000
Total Manufacturing Cost		3500000
Loss of profits from existing demand (7000*185)		1295000
Total Cost		4795000
Units		25000
Bid Price		191.8

Given the total production capacity of the company of 100000 units, the company will have a spare capacity of 28000 units after fulfilling its normal demand. Since the company has spare capacity which can be utilised to fulfil the special order, the company should opt for this. No, extra charges expect for the production cost will be incurred to the special product. Therefore, while planning the bid price for the special order the company should the production cost and margin. The production cost per unit is $185. Therefore, the company can charge any amount above $ 185 per unit for the special order.

Ittelson, T. (2009). Financial Statements: A Step-by-Step Guide to Understanding and Creating Financial Reports. Franklin Lakes, N.J.: Career Press.

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