Big Red Bicycle Pty Ltd is a bicycle manufacturer based in Bendigo, Victoria. The company produces bicycles which it sells to retailers in the domestic Australian market.

The senior management structure of the company appears below.

Person	Position
Michelle Yeo	Chief Executive Officer (CEO)
Tom Copeland	Managing Director
John Black	Chief Financial Officer (CFO)
Stuart LA Roux	Operations General Manager
Pat Roberts	Senior Accountant
Sam Gellar	Sales General Manager
Charles Pierce	Production Manager
Holly Burke	HR Manager

According to company strategic plans, the company had aimed to achieve a net profit before tax of $1,000,000. Actual figures showed the company fell short approximately $175,000 of this goal.

After successful labour cost cutting measures and improved sales team performance, the company aims to generate a net profit before tax of $1,200,000 from Australian operations alone.

This year, in addition to Australian operations, the company is considering manufacturing overseas to take advantage of reduced costs. The company is also considering diversifying its product range to reduce exposure to poor sales of one product.

The board of directors of Big Red Bicycle feels that more cash will be needed to make investments to achieve strategic aims. One significant risk to plans is bad debt and poor cash flow due to large and unsustainable trade debtor balances quarter by quarter.

Note: Strategic plans dictate that Big Red Bicycle must reduce its debt levels and so additional financing to increase cash flow is not an option.

Role

You are Senior Accountant at Big Red Bicycle. As part of your role, you will need to complete the following tasks.

Task A

As you are aware, one risk to the strategic plans of Big Red Bicycle (BRB) is bad debt and poor cash flow due to large trade debtor balances. Consider the following:

• According to its policies, BRB offers 30-day terms to debtors.
• BRB does not currently train sales staff on credit terms.
• There is currently no enforcement of credit terms.
• Warehousing of stock is expensive at current leased premises.
• Many bicycles need to be thrown out if parts rust; this problem exacerbates the problem of waste expense

You have the following information from the Statement of Financial Position and current ledger accounts in the electronic accounting system (MYOB AccountRight).

Account	$
Trade debtors	362,500
Trade creditors	80,000
Opening stock	100,000
Closing stock	300,000
Purchases	1,000,000

Complete the following:

1. Review the Statement of Financial Performance in Appendix 2 to calculate:
   1. The average debtor days __________________
   2. The average creditor days _________________
   3. The average stock turnover ________________
   4. Show calculations and results on your response document for this assessment task.

1. Consider the existing BRB ageing debtors budget in Appendix 2. On your response document, make two written recommendations for improvement to existing financial management processes to improve cash flow. To support your recommendations, refer to data sources, organisational needs, and analytical techniques, for example:
   1. Statement of Financial Performance
   2. ledger accounts
   3. scenario information
   4. ageing debtors budget
   5. ratios.
2. On your response document, list three sources of information of use to completing activity.

Task B

In addition to its Australian business, Big Red Bicycle is considering manufacturing a new range of cheaper bicycles in Indonesia. The following information is available:

• The Indonesian plant has capacity to manufacture 8,000 units.
• Big Red Bicycle's strategic goal is to generate a pretax profit of $1,000,000 for the next financial year for Indonesian operations.
• Clients will pay a maximum of $500 per bicycle
• Possibility exists for move to Indian plant with capacity for 10,000 units.
• Market for bicycles is growing rapidly and BRB will be able to sell all units produced.
• Limited ability to renegotiate costs with suppliers.
• Pricing and cost information is as follows.

Bicycle price per unit	$500 (excl. GST)
Current variable costs per unit	$250
Fixed costs	$1,280,000

Complete the following:

1. On your response document, work out:
   1. how many units at current variable cost would need to be produced to achieve profit target (show calculations)
   2. what the variable costs per unit would need to be to achieve profit target at current manufacturing capacity (show calculations).
2. On your response document, make one written recommendation based on your analysis. To support your recommendation ensure you refer to the organisational needs or situation, and any analytical techniques used. You may also suggest possible actions for BRB to take depending on possible future scenarios.
3. On your response document, list three sources of information of possible use to completing this activity.

Task C

Soon you will need to preparing Business Activity Statement (BAS) for the first quarter on 2012/13.

Complete the following:

1. State how many years you will need to keep GST records in order to satisfy ATO requirements.
2. Complete the GST budget on the following page to anticipate GST liability.

	July	August	September
Budgeted cash receipts incurring GST:
Cash sales	20,000	10,000	10,000
Cash revenue (besides sales)	0	0	0
Cash receipts from sale of assets (not stock)	0	0	0
Total receipts for GST	20,000	10,000	10,000
Budgeted non-cash receipts incurring GST:
Debtors sales	180,000	230,000	150,000
Total non-cash receipts	180,000	230,000	150,000
Total budgeted receipts incurring GST	200,000	240,000	160,000
Budgeted cash payments incurring GST:
Cash purchases of stock	0	0	0
Cash expenses	4,300	5,200	5,250
Total cash receipts incurring GST	4,300	5,200	5,250
Budgeted credit payments incurring GST:
Credit purchases of stock incurring GST	25,000	30,000	25,000
Credit purchases of assets (besides stock)	4,300	5,200	5,250
Total cash payments incurring GST	29,300	35,200	30,250
Total budgeted cash payments incurring GST	33,600	40,400	35,500
GST cash budget calculations
Cash receipts
Cash payments
GST liability