Ha2042 Bega Cheese Ltd. Analysis Answers

• Internal Code :
• Subject Code : HA2042
• University : Holmes Institute
• Subject Name : Accounting and Finance

Accounting Information Systems

Executive Summary of Bega Cheese Ltd. Analysis

The report summarizes the study of Bega Cheese Ltd. The company is an Australian company and provides various food products around the globe. The report studies the revenue and expenditure cycle of the company. The company's main revenue comes from Bega food products and also from the export business. There are certain internal weakness for the company that generates certain risks for the organization. SAP and XERO both are cloud-based accounting software, but SAP is a more suitable software for the organization to cover its internal weaknesses.

Table of Contents

Introduction.

Background.

Major activities involved in the revenue and expenditure cycle of the company.

Weak Internal Controls in Bega Cheeses.

Risks attached to weak control

Software Features.

SAP Features.

Software selection.

Conclusion.

References.

Introduction to Bega Cheese Ltd. Analysis

Bega Cheese is a diversified Australian food company that has its sites for manufacturing at various places that include Queensland, Victoria, and New South Wales. The company is into the dairy and food processing industry and has its headquarters in Bega, Australia. The company got listed on ASX in the year 2011 and has been founded in the year 1899. The company is one of the largest in the dairy sector of Australia with a revenue of around A$1419152000 in the year 2019. The report is aimed at studying the business activities of the company that are involved in the revenue or expense cycle (Baga Cheese Annual Report 2019). Internal weak controls will be identified for the company in the report and the risks that are associated with weak controls. According to that a measure of cloud-based software will be suggested for the company from the most suitable vendor in the report.

Background of Bega Cheese Ltd. Analysis

Bega cheese is a brand that is on number one for cheese manufacturing in Australia. The company has been able to earn a reputation in the dairy industry as one of the major key players on a global scale. The company supplies natural and processed cheeses into both the retail and foodservice market. In the last six years, the company has doubled its size and has acquired Tatura milk industries and various other major cheese manufacturing and packaging in Australia. The company has a varied portfolio and is not limited to cheese. The company also produces around 100 SKU's that include formula for infants, nutritional dairy products, powder for milk, mozzarella, cheddar, and also cream cheese. The company is also the largest producer of lactoferrin which is a protein that binds iron and helps in the system of digestion for minimizing the infection. This helps in providing antibacterial activity to the infants of human. The company is particularly focusing on the Asian market as there is more opportunity for growth for the company. The company has a milk supply of approximately 750 million liters. The overall functionality of the company is spread across the globe and the company has seen a growth in its revenue from A$1252041000 in the year 2018 to A$ 1419152000 in the year 2019 (Annual Report Bega Cheese 2019).

1. Major Activities Involved in The Revenue and Expenditure Cycle of The Company

The company's revenue has increased by 17% in comparison to the last year and the major contributor to the revenue was done by Baga business foods. 18% revenue of the company came from spreads and grocery while 9% was from Nutritionals. The maximum share of revenue was generated from the dairy consumer packaged goods that is 45% while 28% was from dairy and other ingredients. Also, Bega international showed an increase of 29%, comprising 30% of the overall sales. The basic or half of the revenue of Bega cheese comes from the spreads, dairy consumer packed goods. The products are sold under the flagship of the "Bega" brand that is holding 15.7% of the cheese market in Australia. Another major source of revenue for the company is the export segment of Bega cheese. The company's products are exported to around 40 countries around the globe and the products are available in most parts of the supermarkets and general stores. Another important segment of the business of Bega cheese is "core dairy ingredients". This includes cheese, powdered milk, and also the cream cheese that generates around 35% of the company's revenue (Bega Cheese Annual Report 2019). These are the major revenue cycles of the company.

The major expense that the company incurs is in its distribution cycle. The expense incurred on distribution is at $73490 thousand. This is the major expense that the company has incurred. It is the expense that the company incurs in delivering the product that is manufactured from the unit of production to the user who is supposed to consume it. Also, another major expense or the highest expense that the company incurs is on the administration. The administration expenses of the company are at $87694 thousand. Marketing expenses have also increased significantly for the company. The expenses of marketing are at $39123 thousand. Cost of sales refers to the cost that has been incurred by the company in producing various goods and services. It includes the cost of direct materials that is used in manufacturing the goods. Also, the labor cost involved directly in producing the goods is included. The cost of sales is the highest expense of the company. The cost of sales of the company stood at $1166329 thousand (Bega Cheese Annual Report 2019). It includes all the raw materials cost, labor cost, and the production cost of the company. These are the basic activities of the business that are included in the revenue and expenditure cycle of the company. The expenditure is incurred in producing the product and thereof revenue is generated from selling that product.

2. Weak Internal Controls in Bega Cheeses

Weak internal control is the failure of the company in implementing effective controls. The lack of control can be in any part of the business. It might be related to the accounting section or any analytics part of the company. There are certain weakness that prevails in Bega Cheese too. The weak internal control of the company can be depicted as follows:

• Higher sales inventory of the company. The time that is taken by the company's product to be purchased or to be sold is quite high than the margin of the industry. This leads to unnecessary building up of inventory. The company is unable to move its supply of goods into the market even after being a leading market producer. The conversion of cash from inventory becomes slow (Gordon 2017). This can also create a problem of liquidity.
• Low current ratio: The current ratio of the company depicts the financial position or the ability of the company to meet the short term obligations of the organization. For Bega cheese, the liquidity of the company is lesser than the industry ratio that is prevailing.
• Problems in cash flow: Another internal control weakness of the company is the lack of financial planning. The company does not have an appropriate way of managing its finances. This creates a problem at times when the cash is needed for any activity and there is no source of cash available leading to increased borrowings in the company.
• Recent research of market: One of the most important part in the company's progress is to know about the taste of the consumers. But Bega Chesses lacks strength in the area. The company has conducted a research 2 years back and is carrying forward it's functioning on the same data. This shows that the company has a weakness internally where they are not able to generate new data for the products that are required in the market.
• Control of Quality weakness: Another weakness that prevails in the company due to less internal measurement and appropriation of cost is that company is spending or allocating a very little amount to its quality control department than its competitors. This might affect the quality of products for the company (Leung and Furfaro 2020).
• No systematic manner for appraisal of performance: The company has no proper method for appraising the performance of its employees that in turn leads to lower morale at work and also employees do not get proper opportunities for promotion and growth in the organization due to which the turnover ratio of employee reduces and the expense on training and development increases.
• Internal weakness in demand forecasting of the product: The Company has no appropriate system in forecasting the demand of the product. It is one of the reasons why the day's inventory of the company is higher than others. If the demand is not forecasted appropriately than the opportunities that are prevailing in the market will be missed by the company.

3. Risks Attached to Weak Control

The company has various internal control weaknesses due to which various risks are attached to the functioning of the company. The risk attached to each weakness has a different effect on the company. The following are the risks attached with the weaknesses:

• The risk with higher day sales inventory: When the company has a higher day sale inventory, it means that the company has a lower turnover ratio. Also, the cash or revenue of the company will be stuck in inventories. This might lead to lesser cash flows for the company. If the company has lesser cash flow that there might be a difference between receivables and payables which might bring the company into the category of not paying the debts or bad debtor.
• Risk with a low current ratio: There is a risk attached when the company' current ratio is low. The liquidity position of the company is hampered. In case of urgency, the company won't be able to surface enough funds to pay off the current debts.
• Risk attached with cash flow: The Company does not plan its cash flow appropriately that in turn leads to heavy borrowing and interest expenses for the company. If still the company is not able to manage than it might get into bad debts that will ruin the value of the company overall and might lead to closure of its functioning due to poor management of cash activities.
• Risk attached to market research: The Company is not doing the market research and also it is not investing in the research section of the company. Due to this, the company will not be able to upgrade its product as per the demand of the customers. When the customer will not get the products they require, they will move towards another company. This will make the company lose its customer base and its product will lose value. The company will incur losses due to this.
• Risk of Quality control: The Company has no allocated budget for the quality control of its product. This generates a risk of loss for the market share of the company. When the company won't check the quality of its product, it won't be able to deliver quality products to the customers, due to which consumers will move to other products leading to loss of market share of the company.
• Risk from no performance appraisal: When the employees are not appraised for their performance, they move to different opportunities where they are appreciated. This leads to an increase in cost for the company as the company will have to rehire again and spend money on training and another hiring process.
• Risk in unappropriated measure of demand for the future: When the demand is not forecasted appropriately for the future, it will lead to dissatisfaction among the customers. The company might lose its customers. When the demand forecasted will be lower than the actual demand, the company will not be able to supply appropriate products while if the demand is lower than predicted than the company will have to bear the losses for extra products that have been produced. So, these are the various risk that are attached to the weak controls of the company.

Software Features

1. SAP Features

SAP provides help in the financial management of the company. It helps in improving the margin, reducing the errors, and also drives better decisions for profit-making. The software provides a complete set of tools that helps in streamlining the operations of finance.

Accounting is one such feature. SAP automates all the processes of accounting like journal, ledger, and other payables and receivables for the company.

SAP also controls or manages the cash flows for the company. It helps in tracking the fixed assets for the company and also help in controlling the budget and also monitor the projects of costs with better efficiency and accuracy (Lenz et. al. 2020).

It also simplifies the management for the fixed assets and eliminates the need for manual entry of data. Also, the software helps in creating a standardized report with the data that is real-time.

The software also helps in managing the sales and collecting all the data related to sales throughout the cycle of sale.

The software has another feature where it optimizes the practices of purchasing and also controls the cost by managing a cycle from order to pay and includes everything from receipts to payments and also the returns. 

The software also creates reports based on the data that is available by the company. Also, it helps in taking better decisions by generating reports that may conclude appropriate results for the company. Also, it has certain industry-specific capabilities which are designed for small and medium scale business. Thus, SAP is a software that can help the company in overcoming its internal weakness and prepare better results.

Software Selection

SAP and XERO both provide help to the organization in creating better results. They both help in the functioning of accounting, prepare reports and provide data to the company. Analytics is done on accounting and data is produced on a real-time basis by the software.

SAP in between the two will be a better choice for the company as SAP has some extra features that will help the company in getting a more appropriate view. It provides analytics for the company's data and depicts the trends. This will help the company is having better control. So, SAP will be the best option for the company.

Conclusion on Bega Cheese Ltd. Analysis

Bega cheese is an Australian company producing cheese and milk products. The major activities that are involved in the revenue cycle of the company was Bega food products. Also, the company generates its revenue from the exports of its products. The main expenditure of the company includes the cost of sales and administration expenses. There are various weakness that is being faced by the company that includes no control over the finances, less budget to the quality, no appropriate prediction to the company's sales demand etc. SAP and XERO are the two accounting software that can help the company in controlling their weakness. SAP will be better software for the company as it provides data analysis for the demand and provides comparison within the industry. Thus, through this cloud-based software company will be able to attain better results.

References for Bega Cheese Ltd. Analysis

Annual Report. 2019. Bega Cheese Annual Report. Available at: https://www.annualreports.com/Company/bega-cheese-ltd (Accessed on: 10th September 2020)

Gordon, A., 2017. Case study: formula safe foods—canned pasteurized processed cheese. In Food Safety and Quality Systems in Developing Countries, Volume 2 (pp. 149-184).

Lenz, L., Felderer, M., Schwedes, S. and Müller, K., 2020. Explainable Priority Assessment of Software-Defects using Categorical Features at SAP HANA. In Proceedings of the Evaluation and Assessment in Software Engineering (pp. 366-367).

Leung, H. and Furfaro, F., 2020. Comovement of dairy product futures and firm value: returns and volatility. Australian Journal of Agricultural and Resource Economics. Available at: https://onlinelibrary.wiley.com/doi/abs/10.1111/1467-8489.12373 (Accessed on: 10^th September 2020)

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