Now, turning your attention to Billabong, a sportswear firm in Australia, has a

Question

Now, turning your attention to Billabong, a sportswear firm in Australia, has a subsidiary in the US that manufactures and sells clothing and accessories in the US. . Main input is priced in SAUD (AS 50/unit) .All other costs are in USD$ (Fixed cost-Us 2 million, Variable cost U$ 30/unit). Depreciation U$ 0.5 mil SO- A$ 1.25/US Expects to sell 50,000 clothes this year at U$ 150 each. Tax rate-30%; assume tax credits are available for immediate use if losses occur? . Please design an excel spreadsheet to achieve the goals outlined below. (Hint: Use Goal Seek and/or Solver Functions in Excel.) You are required to show all your workings in Excel: a) What are the operating cash flows in A$ and US? b) How many units do Billabong need to sell to break-even in operating cash flows in $AUD? (5 marks)e (5 marks) nd part (b) above for the following questions, and assume that the normal sales are Ignore part (a) a 40,000 Units for the rest of the questions. c) What are your operating cash flows in A$ now? (5 marks) If the spot rate increases to A$ 2.50 /U$, Billabong would like to pass all benefits to its clients by reducing the selling price. What would be the new selling price that would enable Billabong to maintain its profit (operating cash flows in SAUD) in Part (c), and which would pass all benefits to its client at the same time? d) (5 marks)+

Explanation / Answer

50000 CLOTHES Calculation of EBIT PARTICULARS AMOUNT SALES(50000*$150) 7500000 LESS: MAIN INPUT(50000*A$50/1.25) -2000000 Less:Variable Cost(50000*$30) -1500000 Contribution margin 4000000 Less:Fixed cost -2000000 EBIT 2000000 (A) CASH FLOW FROM OPERATING ACTIVITIES = EBIT+DEPRECIATION-TAXATION =2000000+500000-(2000000*30%) =$1900000 CASH FLOW FROM OPERATING ACTIVITIES IN AUS $ = 1900000*A$1.25 =A $2375000 CONTRIBUTION MARGIN PER UNIT = 4000000/50000 = $80 FIXED COST LESS DEPRECIATION = 2000000-500000 = $1500000 (B) BREAK EVEVN POINT IN AUS$ = (1500000/80)*1.25 =23437.5 CLOTHES 40000 CLOTHES Calculation of EBIT PARTICULARS AMOUNT SALES(40000*$150) 6000000 LESS: MAIN INPUT(40000*A$50/1.25) -1600000 Less:Variable Cost(40000*$30) -1200000 Contribution margin 3200000 Less:Fixed cost -2000000 EBIT 1200000 CASH FLOW FROM OPERATING ACTIVITIES = EBIT+DEPRECIATION-TAXATION =1200000+500000-(1200000*30%) $1,340,000 (C ) CASH FLOW FROM OPERATING ACTIVITIES IN AUS $ = 1340000*A$1.25 1675000 =A $1675000 CASH FLOW FROM OPERATING ACTIVITIES IN AUS $ IN INCREASED SPOT RATE = 1340000*A$2.5 = A $3350000 INCREASE IN OPERATING CASH FLOWS DUE TO INCREASE IN SPOT RATE = 3350000-1675000 = A $1675000 REDUCTION IN SELLIN PRICE = 1675000/40000 = A $41.875 REDUCTION IN SELLIN PRICE IN US $ = 41.875/2.5 = $16.75 (D) NEW SELLING PRICE = $150-$16.75 =$ 133.25

Related Questions

Navigate

• Browse (All)
• Browse N
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.