Voyager is a Telco with an innovation that will generate it significant market s
ID: 2578686 • Letter: V
Question
Voyager is a Telco with an innovation that will generate it significant market share growth. This will result in many new customers in several new areas. Voyager is aiming for much higher incomes. Consequently it has adopted an organisational expansion policy seeking to maximise income. Voyager is about the revenue forecast but unsure of their total budget expenses.
How would you explain in 300–350 words to Voyager executives the importance of considering related expenses? What controls might you recommend when planning for an aggressive revenue expansion policy? Why would you make these recommendations?
2
Apollo has a brief high revenue season over the New Year period. They decide to offer terms of credit to attract customers in the slower mid-year period to help with cash inflows.
The terms are 50% payable on purchase with the balance payable within one month of receiving the payment invoice. New credit customers have been assigned by several different sales staff.
The impact on accounts receivable has meant that many accounts are still not paid after two months.
This has had an unfavourable impact on the actual profit for the March quarter.
What financial controls can be introduced to ensure that Apollo has enough cash for the slow mid-year period and that accounts receivable are managed properly? (100–170 words)
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Answer to Part 1
Income and expenses are like two wheels of a bike that run together, noone can move further without the other. In Voyager, we have potential for exponential growth because of our new tech which shall require expanding to new market area, touching the customer segment we have not before and adopting to the aggessive selling strategy which we have been avioding til now. Aiming for higher income is need of the hour and actually possible for us thanks to the new innovation of allowing much better video calling from our network in low bandwidth.
Here I would like to attract your attention towards another aspect of the story. Higher turnover may not necessarily mean higher income because of the related expenses we have to incur like rent of our service outlets, wages to new emplyees, advertisement expenses to attract new customers and the list shall go on. It is inevitable to consider related expesnes we have to incur to earn extra income and therefore not put our hopes much over the high turnover we migh record because the high expenses may set it off. In such scenario, it is needful that we keep controls over expenses by establishing cost centres, alloting a cost centre's responsibility to the qualified personal, have frequent reviews over the expenses incured and do the required cost benifit analysis.
If we dont keep check over our controls than it shall be not possible for us to achieve target of high net income and we shall not be able to exploit the new tech's earning potential we have.
Answer to Part 2
Appolo follows a market driven strategy of flexible payment terms in order to attract customer and keep the flow of cash nominal to support their cashflows. However, before providing with credit, Appolo can put following controls in place :
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