Professional Documents
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Chicken Run Case Study G3
Chicken Run Case Study G3
GROUP: AC220 8E
Group Members :
Nur Fariesya Binti Zambry
2012410308
2012858436
2013886334
2012254938
Challenges
Low liquidity of cash flow in Excel Poultry &
Meat (EPM)
The development of the company in late 2008 had puzzled Encik Selamat. He was especially
concerned to note a report, which indicated that the operating cash was systematically
running low.
He was also especially worried on the severity of the matter, in which the company had to resort
to significant increase in the short term borrowing in order to meet operating obligations.
This may in turn increase its financial obligation in terms of interest payments.
In the meantime, Credit Controller, Ms Choy discovered from the aging analysis of
customers that the credit limit of Cold Gold Sdn Bhd one of its major customers had gone
into its level and yet the marketing department continued to supply products to the
company.
Recommendations
Recommendations
2. Offer incentive
to customers/
buyers
3. Export chicken
products to
another
countries
For
example;
Types
Purpose
Eggs
Feathers
Livestock
Offer discounts
Offer discount if for the early
payment of
buy in bulk.
borrowing.
Pay in different
schedules
Establish
business
agreement to
pay in agreed
intervals.
Buy now, pay
later.
Reduc
e cost
Increas
e sale
EPM still continued to supply the chicken to Cold Gold Sdn Bhd even
though the customer credit limit has exceeded
Recommendation
s
Credit Policy
and Credit
Term
Sales Order
Entry
Collection
Procedures
2006 (RM
million)
54.70
2007 (RM
million)
55.01
2008 (RM
million)
74.90
12.70
16.20
26.00
84 days
(< 3 months)
107 days
( > 3 months)
126 days
( > 4 months)
Formula:
Trade Receivables
Revenue / 365
days
Therefore, possessing a
lower average collection
period is seen as optimal to
turn its receivables into cash
quickly
EPM should:
1) Keep customer information up
to date
2) Send out reminders during the
week prior to a contractually due
payment date
1. Find
customers
that afford
to pay in
timely
manner
Before applying
Credit Policy, EPM
should set Credit
Department
Guidelines
2. Conduct a
background
check on
their
customers
credit
account
To screen out
their potential
and existing
customer
3. Prepare a
specific
contract
that includes
the credit
term
To protects
EPM from the
fraudulent
applicant
4. Send
reminders
to customers
with
outstanding
balances
Credit Terms
The credit terms offered to customers for early payment need to be sufficiently
lucrative for them to want to pay early
Conditions included
within credit terms
1. Take
Order
Rejected
Orders
Approve
Orders
2. Approve
Credit
Acknowledgement
3. Check
Inventory
Availability
4. Collection Procedure
Payments
Customer
Cash
Collection
Cash Receipts
Implementation
of closed-loop
verification to
ensure that
proper account
is being credited
Documenting
collection of
payment made
by customers
Deposits
Bank
Statements
Field check
onto the
numeric
values must be
done frequently
for the payment
amounts
Reconcile the
subsidiary
account
receivables in
general which
should be done
by another
person
Closed-loop Verification
An input validation method that uses data entered into the system to retrieve and display
other related information so the accuracy of the input data can be verified
Recommendations
Apply
banking
facilities &
financial
assistance
Improve
financial
position and
financial
performance
Change or
mixed
chicken feed
Integrate the
production
planning
and control
system
Increase in
short term
borrowing
Increase
interest
payment
Operating
cash
running
low
Long term
loans
Cash
flow
Interest
rate
Stabilit
y
minimize time
spent saving
for investment
fixed interest
rates
(consistent
monthly
payments and
high
predictability)
no need to
search for
financing often
easy to budget
the operational
income
easier project
earnings and
cash flows as
what interest
expenses will
be each month
Inventory
Turnover Ratio=
Cost of Good Sold
Inventory
Particular/ Year
2006
(RM million)
2007
(RM million)
2008
(RM million)
Cost of Sales
51.70
54.10
74.09
Stock
3.10
1.50
2.60
Inventory Turnover
Ratio (times)
16.68
36.07
28.50
Turnover Ratio
High
turnover
ratio
Low turnover
ratio
Issue:
Increased
chicken feed
cost which has
risen to RM88
from RM54.50 (an
increase in almost
61.5%).
The increase in
feeding cost has
ultimately
increased the
companys
production cost
to about 56.5%.
Conclusion:
The low
liquidity of cash
flow in EPM is
the increase in the
cost of chicken
feed.
Chicken Feed:
Wheat
one of the best grains for poultry feeding should be ground and fed in mashes and less in
the scratch feed
Oats
vary considerably in feeding value, due to difference in hull, can be fed whole as part of a
scratch feed or in mashes in the crushed, rolled or finely ground form
Barley
work well as part of the scratch feed and in mashes in crushed, rolled or finely ground form
Corn
a very desirable grain that can feed as whole, cracked or ground. Shell corn may be used
with other grains as scratch feed and corn chop can be included in any of the dry mash
rations
Production
planning
Production
control
is required for:
-scheduling,
-dispatch,
-inspection,
-quality management,
-inventory management,
-supply management
-and equipment management
Ways to integrate:
ensures that optimum utilization of
production capacity is achieved, by
proper scheduling of the machine items which
reduces the idle time as well as over use
overlooks all
aspects of
production, quality
of final product is
always maintained
Integrate the
production
planning &
control
system
Recommendations
Conflict of
interest
Whistle blower
Established
internal
procedures
Good
communication
across level of
management
1. Conflict of interest
Issue: En. Azman was Encik Selamats best friend during college days .
En. Selamat
En. Azman
(such as delivery
notes, invoices, orders, physical counts, paper or electronic trail) in
the measurement of financial results.
Reference: The Code of Ethics and Conduct, Section 3 of the ACCA Rulebook
2. Whistle blower
Whistle Blower (Pn. Azura)
a person who informs on a person or organization engaged in an
illicit activity
should develop
whistle
blowing policy
ensure and
encourage the
members of EPM
to disclose any
conflict of
interest issues or
irregularities
Internal control:
is a process for assuring achievement of an organization's objectives in operational
effectiveness and efficiency, reliable financial reporting, and compliance with laws,
regulations and policies.
Internal procedures:
policies provide a framework within which an organisation makes choices about how it
operates and so can either help or hinder the implementation of the strategic plan
En Selamat deals with Gold Cold Sdn Bhd
Account executive deals to collect payment
Communication protocols
Avoid miscommunication
Absorb them into EPMs corporate culture to be
shared within the organization.
Reference: D., Draz. (2011, March 28). Fraud prevention: Improving internal
controls. Retrieved March 20, 2016.