Question

17

Tyres Galore has an excess of 80,000 rubber tyre inner tubes that cost $20,000 to manufacture. Demand for the inner tubes has dropped and is not likely to pick up until next summer (after 9 months) when they could be sold for $6 each. Storage for the inner tubes costs $800 per month, and in the Queensland heat 15% of the inner tubes will deteriorate and have no value and Tyres Galore would have to spend $1 per inner tube to have the deteriorated inner tubes disposed of in landfill (unless they illegally burn them at no cost). They could have a clearance sale now and sell all of the inner tubes for $4 each, but this would also require $2,000 to advertise the sale.

Required:

(a) Based on the information provided above alone, prepare an analysis showing the relevant costs and revenues of each alternative, and based on your calculations alone, suggest which alternative Tyres Galore should chose.

(b) Tyres Galore reports under the Global Report Initiative (GRI) in its annual report. Explain what GRI is. Are there any non-financial considerations in the decision regarding the inner tubes? Discuss these briefly.

Answer 1

(A) Calculation of alternatives of sale are presented on paper.

From profit point of view, tyres galore should choose alternative 2. But it is illegal to burn tubes, company can face penalty or other charges and also it is unethical to do so. Tyres galore can choose next best alternative which is alternative 1.

(B) The Global Reporting Initiative (known as GRI) is an international independent standards organization that helps businesses, governments and other organizations understand and communicate their impacts on issues such as climate change, human rights and corruption.

Non-financial Reporting

1. Sustainability Reporting is a process of gathering
and disclosing data on non-financial aspects of a company’s performance, including environmental, social, employee and ethical matters, and defining measurements, indicators and sustainability goals based on the company’s strategy. Sustainability reporting might be performed according to the GRI methodology, which defines Sustainability reporting guidelines and the best practice in the field.

2. INTEGRATED REPORTING is a process of building an integrated report by combining financial statements and sustainability reports into a coherent whole that explains company’s ability to create and sustain value. Integrated reporting might be supported by the integrated reporting framework.

In case of Tyre galore, one of the alternative is burning the tubes illegaly. If tyre galore chooses that alternative they have to report that in GRI because it will impact environment, society badly. Which will downgrade the image of tyre galore, so better to choose next best alternative.