CHAPTER 13 Financing the business 559increasing the market share of the company. Strategies to achieve this goal were increasing
marketing and promotional activities and offering attractive credit terms to new customers. The
implementation of both strategies was successful. Coconut Plantations has recently enjoyed an
upsurge in sales and its accounts receivable balances have increased dramatically to average
$120 000 on most trading days of the year. If Jo could reduce the accounts receivable balance,
she believes the company could increase its inventory, sales and profitability. Jo is concerned
about exerting too much pressure on its accounts receivable for fear of losing customers.
Required
a. How could Coconut Plantations Pty Ltd encourage its credit customers to pay earlier?
b. If Coconut Plantations Pty Ltd’s accounts receivable management strategies result in
average accounts receivable reducing to $80 000, how would this lead to increases in sales
and profitability?13.25 Managing payroll LO5
SmartIT makes smartphone covers. The employee payroll averages $100 000 per week. SmartIT
would like to extend the pay cycle to fortnightly. The manufacturing workers union argues the
company is saving payroll handling costs of $20 000 and has other benefits. If short-term funding
earns 10 per cent per annum, quantify the other benefits.13.26 Managing cash LO2
Super Sally Ltd has $2 million spare cash from commissions earned during the busy pre-
Christmas season. Staff are paid a retainer, as well as part of the commissions earned through
sales. Super Sally Ltd is aware from past experience that sales fall off during winter and that
there will be a cash deficit then. Super Sally Ltd finds it can invest the funds for six months by
taking a two-month term deposit at 5.0 per cent per annum and rolling it over twice, a three-
month deposit at 5.2 per cent per annum rolled once, or a straight six-month term deposit at
5.5 per cent per annum. Advise Super Sally Ltd on the best course of action.13.27 Managing accounts receivable LO1, 3
Hong Ltd reported $400 million in credit sales in 2014 to 2015 and 2015 to 2016. Average
accounts receivable dropped from $50 million to $40 million over the two periods.
Required
a. Assuming 220 trading days each year, how has debtors turnover changed?
b. Explain why this might have occurred.13.28 Managing trade creditors LO1, 5
Coconut Plantations Pty Ltd manufactures coconut-based products and commenced operations in
- Production and sales have grown consistently since commencing operations. Here are data
for the last four years (in $ 000).
Item 2016 2017 2018 2019
Trade creditors 3.3 42.5 78 85
Credit purchases 185 650 660 750Required
a. Compute the creditors turnover for Coconut Plantations Pty Ltd’s trade creditors for the
last three years.
b. How would you explain the differences or similarities in creditors turnover values each
year?13.29 Managing trade creditors LO1, 5
Toowong Ltd has been growing relatively slowly in a mature industry. Its trade creditor and
credit sales data for the last five years (in $ million) are shown below.Item 2014 2015 2016 2017 2018
Trade creditors 380 410 502 594 690
Credit purchases 4 206 4 580 4 826 5 010 5 340