A study on cash management of abc company

ABC Company Case Study Exercise Instructions

Purpose of the Exercise

This case study has three objectives:

1) To demonstrate your skill in building spreadsheets in Excel.

2) To demonstrate your understanding of basic management accounting principles.

3) To facilitate possible future conversations during the recruiting and training process

as a candidate for the position of Senior Business Consultant.

Although most of our consulting time is spent literally turning the business around by

changing behavior in the workplace, it is imperative to be able to verify, build and

discuss simple financial management reports with Clients on virtually every

engagement. In addition, behavior change, and key performance indicators must drive

financial return. It is essential to reverse engineer behavior change goals and these

goals must be supported by a clear understanding of solid financial information.

Instructions for the Exercises

Follow the directions for each exercise carefully.

o Exercises must be built from scratch (no templates) in MS Excel.

o Use one MS Excel document (workbook), but a separate tab (worksheet) for

each exercise.

o Place your name at the top of each page.

o Try your best to format each worksheet so that it will print on one page.

o Include assumptions you have made and explain pertinent choices for each

exercise at the bottom of each page.

Be certain to consider the biographical information in all exercises to help paint a picture

of reality.

Thank you for your continued interest in our training

and the Senior Business Consultant position!

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ABC Company - Biographical Information

ABC Company is a family owned business which Jonathan started 15 years ago,

issuing 900 shares of the 1000 authorized, at a par value of $100 a share. ABC

Company is a small manufacturer which produces ladies’ sports apparel. The business

has employed as many as 30 people; however, sales have slipped the last three years,

according to Jonathan, due to competition in the marketplace, and the economy.

Currently, the business employs nine people, including Jonathan and his son, Junior,

who is the Plant Manager. The business appears to be on pace to produce about the

same as last year, $800,000, which is down from their high of about $2,500,000 just

four years ago.

Jonathan’s family is personally in financial trouble, because Jonathan and Junior aren’t

taking home the same salary they used to. Three years ago, each of them earned

$200K per year. At the time of our arrival, Jonathan hadn’t taken any pay for a month,

and Junior is being paid at the rate of $50K per year. Jonathan has a few health issues,

and wants Junior to take over the business, but can’t afford to hire a new Plant

Manager. Morale throughout the company is low, and productivity is suffering.

ABC Company sold 12,307 units last year. 85% of the sales were in workout leggings.

Remaining sales were from one order of sweatshirts by their oldest customer.

They are behind in payables and past due receivables are at an all time high. Their

customer base consists mainly of three local retailers who love working with Jonathan

and Junior and have been customers for years.

Vendors are getting tired of being paid late, and their primary fabric vendor has just

recently put them on COD. There is a loan on the books from Junior’s mother-in-law for

$30,000, with a pay plan of $750 a month, but the Company has missed the last three

payments and Junior and his wife are becoming increasingly upset about the

embarrassment and problems this is causing in their family life.

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Exercise One – Tab One (portrait page format)

Build a standard, simple Income Statement (P&L). It must show Revenue, Cost of

Goods/Direct Costs, and Overhead expenses, along with the standard totals in each

section. Include dollar amounts and percentages for each line item. Be careful to

choose only P&L appropriate items from the list of “The Numbers” the Client provided.

The Numbers Accounting Fees 6,000

Accounts Payable 94,300

Accounts Receivable 92,600

Accum Depr - Building 20,000

Accum Depr - Equipment 16,000

Accum Depr - Vehicles 8,000

Advertising 7,500

Additional Paid-in Capital 25,000

Bank Fees 4,450

Building 70,000

Capital Stock 90,000

Cash 36,400

Discounts & Allowances - 21,500

Discounts – Materials -8,520

Dues & Subscriptions 620

Equipment 30,000

Equipment Maintenance 18,690

Franchise 6,500

Freight Out Expense 5,200

Goodwill 10,000

Income Tax 800

Interest Expense 4,000

Investment in JKL Corporation 9,000

Land 9,250

Marketable Securities 8,000

Material Purchases 292,500

Merchandise Inventory 119,000

Motor Vehicles 20,000

Note Payable (due in 6 months) 7,000

Note Payable (due in 2.5 years) 30,000

Notes Receivable 5,000

Office Supplies 6,000

Payroll - Administrative 44,000

Payroll - Direct Labor 202,210

Payroll - Management 50,000

Payroll - Overtime 13,600

Payroll taxes 15,000

Prepaid Expenses 3,000

Rent 30,000

Repairs & Maintenance 21,250

Retained Earnings 119,750

Revenue 821,500

Revenue Received in Advance 2,000

Sales Commissions 40,000

Selling Supplies 2,250

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Exercise Two – Tab Two (landscape page format)

Prepare a Six-Week Cash Flow Forecast taking into account the information directly

below, the information from the income statement, and the biographical information.

This exercise does not have an exact answer, of course. However, there must be

positive cash flow each week, and your choices must be reasonable and realistic. You

must also show improvements because you are there to improve the business.

AR, AP, and other payments due.

Beginning Checking Account Balance $ 7,000

Average Weekly Sales for the last 3 months $ 6,000

A/R Current $23,600

A/R 30 days $20,000

A/R 60 days $12,000

A/R 90 days $18,000

A/R over 90 $24,000

Payroll is every other week $11,916

Payroll Taxes (due on 15th of every month) $ 1,250

A/P Current $30,000

A/P 30 days $33,000

A/P 60 days $15,000

A/P 90 days $ 6,200

A/P over 90 $ 9,100

Truck Lease (due on 13th of every month) $ 550

Payment on Building (due 1st of every month) $ 2,500

Equipment Loan (due 22nd of every month) $ 1,350

Accountant Fee (due 1st of every month) $ 1,200

Telephone average (due 20th of every month) $ 650

Utilities average (due 4th of every month) $ 850

Mother-in-Law loan payback (due 5th of every month) $ 750