Chicken Run Case Study

GROUP: AC220 8E
Group Members :
Nur Fariesya Binti 20124103
Zambry 08

Nurul Farhana Binti 20128584

Jasni 36

Rawiah Abu Naim 20138863

34
Siti Nurhalidah Bt 20122549
Sulaiman 38
 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
 Recommendation
s

Establish new marketing strategy to

increase operating cash
3. Export
2. Offer
1. Develop chicken
incentive to
more chicken products to
customers/
products another
buyers
countries
 1. Develop more chicken products.

 EPM can expand or develop more chicken products to sale.

Since the main activity of EPM is supplying the whole chicken

to customers, it is advisable to develop more products to
increase the sales.
 For example : Ayamas Food Corporation
For example;

Types Purpose
EPM can raise the chicken eggs either
Eggs for consumption or to breed more
chicken to sell.
The chicken feathers also can be use to
Feathers
sell to the handicraft makers.

EPM can sell the chickens not only for

Livestock consumption but also to customers who
would like to buy chicken as pet.
 2. Offer incentive to customers/ buyers

Customer incentive programs offer benefits to loyal buyers. Some

businesses offer frequent-shopper discounts or points-based reward systems
that allow customers to accumulate benefits with every purchase.
To help EPM:
Offer discount benefit

Offer more
Early payment incentives
Pay in different
Reduc
cheaper price.
Offer discount
Offer discounts schedules
for the early
payment of
e cost
if buy in bulk. Establish
borrowing.
business
agreement to
pay in agreed Increas
intervals.
Buy now, pay
e sale
later.
 3. Export chicken products to another
countries
Singapore
Consumption of all types of meat has dropped down in Singapore,
except for chicken. Chicken continues to be the dominant choice
for meat even with the new trends for food in the country. There
have been many switching and choosing healthier options for
meals such as vegetarian alternatives. Only chicken remains
unchanged.

Hong Kong
Meat continued to be popular as consumption is still on the rise for
all types of meat in Asia. For Hong Kong, chicken is the primary
choice over other types of meat. The main reason chicken is used
is due to its affordability as compared to other meats. The country
also sports a high amount of recipes using chicken as a side or as a
main course.

http://www.thepoultrysite.com/articles/2929/global-poultry-trends-
2013-asia-consumes-40-per-cent-of-worlds-chicken/
 • Significant increase in the
Issu Operating cash
trade receivables, also cash
e2 running low
collection

EPM still continued to supply the chicken to Cold Gold Sdn Bhd
even though the customer credit limit has exceeded

The marketing department didn’t follow the procedure on credit

sales term

Procedure on credit sales term to ensure the customer

didn’t exceed the credit limit
 Recommendation
s

Well-designed policies governing its

Average Credit Policy Sales

Collection
Collection and Credit Order
Procedures
Period Term Entry
 1. Average Collection Period
2006 (RM 2007 (RM 2008 (RM Formula:
Particular/Year
million) million) million) Trade
Revenue 54.70 55.01 74.90 Receivables
Trade Revenue / 365
12.70 16.20 26.00
Receivables days
Days to Collect
84 days 107 days 126 days
Account
(< 3 months) ( > 3 months) ( > 4 months)
Receivable

Therefore, possessing a
Comparing the time Higher value of average lower average
allocation for the collection period is collection period is
company to collect its unfavorable, whereas seen as optimal to turn its
trade receivable lower value is receivables into cash
favorable quickly

EPM should:
Average collection Average collection 1) Keep customer information
period > Credit term period < Credit term up to date
Credit policy too Credit policy too 2) Send out reminders during
lenient restrictive
the week prior to a
contractually due payment date
 2. Setting Credit Policy

EPM allows
Before applying To protects
their To screen out
Credit Policy, EPM EPM from
customers to their potential
should set Credit the
purchase their and existing
Department fraudulent
products by customer
Guidelines applicant
credit

2. Conduct a
1. Find 3. Prepare a 4. Send
backgroun
customers specific reminders
d check on
that afford contract to customers
their
to pay in that includes with
customer’s
timely the credit outstanding
credit
manner term balances
account
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 EPM should use

credit terms such as
within credit terms 30 days such as
stated in the
contract
The amount of credit extended
to the customer

The time period within which

payments must be made by the “the customer must pay
customer within 10 days to obtain
a 2% discount, or can
make a normal payment
Early payment discount terms
in 30 days, then the
terms are stated as
The penalty to be charged if "2/10 net 30"”
payments are late
 3. Sales Order Entry

Orde
r 1. Take
Customer
Order
Marketing department continued to
supply their product even the credit
limit of Cold Gold Sdn Bhd had gone
Rejected Approve into its limit
Orders Orders

2. Approve
Credit
EPM should take alert on
their revenue cycle
Acknowledgemen especially sales order
t
entry.

3. Check
Inventory
Availability To mitigate potential
risks
 4. Collection Procedure

Payments Deposits
Cash
Customer Collection
Bank

Cash Receipts Statements

Reconcile
Implementati Field check
the subsidiary
on of closed- onto the
Documentin account
loop numeric
g collection of receivables in
verification values must
payment general which
to ensure that be done
made by should be
proper frequently for
customers done by
account is the payment
another
being credited amounts
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
 Recommendation
s

EPM improving the operating cash:

Apply
Change or
banking
mixed
facilities & Improve chicken Integrate
financial financial feed the
assistance position
and production
financial planning
performan and control
ce system
 1. Apply other financial assistances

Issue: Long • consists of loans and financial obligations

term
lasting over one year (longer payback
period).
• i.e.: MARA, PUNB
Increase
in short
loans
term
borrowin
g
Cash Interes Stabilit
Increase flow t rate y
interest minimize fixed interest no need to
payment time spent rates search for
saving for (consistent financing
Operatin investment monthly often
g cash payments easier
running uses funds for and high project
low capital predictabilit earnings and
improvements, y) cash flows as
acquire what
equipment or
easy to
budget the interest
purchase
supplies operational expenses
income will be each
month
 2. Improve financial position and financial
performance

Inventory
Turnover
Ratio=
• showing how many times a
company's inventory is sold
Cost of Good and replaced over a period.
Sold
Inventory

2006 2007 2008

Particular/ Year (RM million) (RM million) (RM million)

Cost of Sales 51.70 54.10 74.09

Stock 3.10 1.50 2.60
Inventory
Turnover Ratio 16.68 36.07 28.50
(times)

Better turnover ratio

 Turnover Ratio

High Low
turnover turnover
ratio
shows strong sales
ratio
means not selling through
performance products efficiently

ability to keep up with near- buying too much inventory for

term debt obligations demand

result by buy too little throwing out expired or

inventory to keep up with perished products
customer demands
cause to sell products at
buying smaller inventory discounts to clear them out
amounts regularly
result from inventory build up
need to review the inventory intended to meet pending
buying practices spikes in demand
3. Change or mixed chicken feed

Issue:

The increase in Conclusion:

Increased
feeding cost has The low
chicken feed
ultimately liquidity of
cost which has
increased the cash flow in
risen to RM88
company’s EPM is the
from RM54.50
production increase in the
(an increase in
cost to about cost of chicken
almost 61.5%).
56.5%. 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
4. Integrate production planning & control system

Production Production
planning control
is required for:
-scheduling, ensures that production
team can:
-dispatch,
-achieve required
-inspection, production target,
-quality management, -optimum utilization of
-inventory management, resources,
-supply management -quality management,
-and equipment -and cost savings
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 ensures that
Integrate
aspects of inventory level are
the
production, maintained at
production
quality of final optimum levels at all
planning & time, i.e. there is no
product is
control over-stocking or
always
system under-stocking
maintained
ensures that production time
is kept at optimum level and
thereby increasing the
turnover time
 Recommendation
s

Establish Policies For Clear Ethical Conducts,

Job Scopes & Management Of EPM:

Good
Established communicatio
Conflict of Whistle
internal n across level
interest blower
procedures of
management
 1. Conflict of interest

Issue: En. Azman was Encik Selamat’s best friend during college days .

En.
Selamat
En. Azman

Objectivity: Accountant’s reliance on verifiable evidence (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 ensure and
for clear
encourage the
ethical
members of
should develop conducts, job
EPM to
whistle scopes and
disclose any
blowing management of
conflict of
policy EPM to solve
interest issues
the ethical
or
problems
irregularities

Reference: J. Lister (2016). Ethical Issues Facing the Accounting

Profession.
 3. Established internal procedures

Issue: En.Selamat had a meeting with one of the executive directors of Cold
Gold Sdn Bhd, En. Azman to possibly pay part of the paymnet, if not full
settlement of the overdue account.

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

Reference: Code Of Ethics For Professional Accountants

 4. Good communication across level of
management

Communication protocols

Avoid miscommunication

Absorb them into EPM’s corporate

culture to be shared within the
organization.

Reference: D., Draz. (2011, March 28). Fraud prevention: Improving

internal controls. Retrieved March 20, 2016.