Loading...

Messages

Proposals

Stuck in your homework and missing deadline? Get urgent help in $10/Page with 24 hours deadline

Get Urgent Writing Help In Your Essays, Assignments, Homeworks, Dissertation, Thesis Or Coursework & Achieve A+ Grades.

Privacy Guaranteed - 100% Plagiarism Free Writing - Free Turnitin Report - Professional And Experienced Writers - 24/7 Online Support

Gale force surfing case study

31/12/2020 Client: saad24vbs Deadline: 3 days

Copyright © 2017 by University of Phoenix. All rights reserved. Week 2 Case Study


FIN/486 Version 6 1


Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.


Gale Force Surfing


During mid-September 2015, the top managers of the Gale Force Corporation, a leading manufacturer of windsurfing equipment and surfboards, were gathered in the president’s conference room reviewing the results of the company’s operations during the past fiscal year (which runs from October 1 to September 30).


“Not a bad year, on the whole,” remarked the president, 32-year-old Charles (“Chuck”) Jamison. “Sales were up, profits were up, and our return on equity was a respectable 15 percent. In fact,” he continued, “the only dark spot


I can find in our whole annual report is the profit margin, which is only 2.25 percent. Seems like we ought to be making more than that, don’t you think, Tim?” He looked across the table at the vice president for finance, Timothy Baggit, age 28.


“I agree,” replied Tim, “and I’m glad you brought it up, because I have a suggestion on how to improve that situation.” He leaned forward in his chair as he realized he had captured the interest of the others. “The problem is, we have too many expenses on our income statement that are eating up the profits. Now, I’ve done some checking, and the expenses all seem to be legitimate except for interest expense. Look here, we paid over $250,000 last year to the bank just to finance our short-term borrowing. If we could have kept that money instead, our profit margin ratio would have been 4.01 percent, which is higher than any other firm in the industry.”


“But, Tim, we have to borrow like that,” responded Roy (“Pop”) Thomas, age 35, the vice president for production. “After all, our sales are seasonal, with almost all occurring between March and September. Since we don’t have much money coming in from October to February, we have to borrow to keep the production line going.”


“Right,” Tim replied, “and it’s the production line that’s the problem. We produce the same number of products every month, no matter what we expect sales to be. This causes inventory to build up when sales are slow and to deplete when sales pick up. That fluctuating inventory causes all sorts of problems, including the excessive amount of borrowing we have to do to finance the inventory accumulation.” (See Tables 1 through 5 for details of Gale Force’s current operations based on equal monthly production.)


Copyright © 2017 by University of Phoenix. All rights reserved. Week 2 Case Study


FIN/486 Version 6 2


Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.


Table 1 Sales Forecast (in units) First Quarter Second Quarter Third Quarter Fourth Quarter


October 2014 ..... 150 January ...................... 0 April ......................... 500 July.......................... 1,000


November .......... 75 February .................... 0 May .......................... 1,000 August ..................... 500


December ........... 25 March ........................ 300 June ......................... 1,000 September ............... 250


Table 2 Production Schedule and Inventory (equal monthly production)


Beginning Inventory


Production This


Month Sales End


Inventory


Inventory ($2,000 per unit)


October 2014 .............. 400 + 400 - 150 = 650 $1,300,000 November ................... 650 400 75 975 1,950,000 December .................... 975 400 25 1,350 2,700,000 January ........................ 1,350 400 0 1,750 3,500,000 February ...................... 1,750 400 0 2,150 4,300,000 March .......................... 2,150 400 300 2,250 4,500,000 April ............................. 2,250 400 500 2,150 4,300,000 May ............................. 2,150 400 1,000 1,550 3,100,000 June ............................. 1,550 400 1,000 950 1,900,000 July .............................. 950 400 1,000 350 700,000 August ......................... 350 400 500 250 500,000 September................... 250 400 250 400 800,000


Table 3 Sales Forecast, Cash Receipts and Payments, and Cash Budget


October


2014 November December January February March


Sales Forecast


Sales (units) ................................. 150 75 25 0 0 300 Sales (unit price: $3,000) ............. $ 450,000 $ 225,000 $ 75,000 0 0 $ 900,000


Cash Receipts Schedule


50% cash ..................................... $ 225,000 $ 112,500 $ 37,500 $ 450,000 50% from prior month’s sales* ... $ 375,000 $ 225,000 $ 112,500 $ 37,500 0 0 Total cash receipts ................ $ 600,000 $ 337,500 $ 150,000 $ 37,500 0 $ 450,000


Cash Payments Schedule


Production in units ...................... 400 400 400 400 400 400 Production costs (each = $2,000) $ 800,000 $ 800,000 $ 800,000 $ 800,000 $ 800,000 $ 800,000 Overhead .................................... $ 200,000 $ 200,000 $ 200,000 $ 200,000 $ 200,000 $ 200,000 Dividends and interest ................ 0 0 0 0 0 0 Taxes ........................................... $ 150,000 0 0 $ 150,000 0 0 Total cash payments ............. $ 1,150,000 $ 1,000,000 $ 1,000,000 $ 1,150,000 $ 1,000,000 $ 1,000,000


Cash Budget; Required Minimum Balance is $125,000


Cash flow..................................... $ –550,000 –662,500 –850,000 –1,112,500 –1,000,000 –550,000 Beginning cash ............................ 125,000 125,000 125,000 125,000 125,000 125,000 Cumulative cash balance ............. –425,000 –537,500 –725,000 –987,500 –875,000 –425,000 Monthly loan or (repayment)...... $ 550,000 $ 662,500 $ 850,000 $ 1,112,500 $ 1,000,000 $ 550,000


Cumulative loan .......................... $ 550,000 $ 1,212,500 $ 2,062,500 $ 3,175,000 $ 4,175,000 $ 4,725,000 Ending cash balance .................... $ 125,000 $ 125,000 $ 125,000 $ 125,000 $ 125,000 $ 125,000


Copyright © 2017 by University of Phoenix. All rights reserved. Week 2 Case Study


FIN/486 Version 6 3


Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.


*September sales assumed to be $750,000.


“Now, here’s my idea,” said Tim. “Instead of producing 400 items a month, every month, we match the production schedule with the sales forecast. For example, if we expect to sell 150 windsurfers in October, then we only make 150. That way we avoid borrowing to make the 250 more that we don’t expect to sell, anyway. Over the course of an entire year the savings in interest expense could really add up.”


“Hold on, now,” Pop responded, feeling that his territory was being threatened. “That kind of scheduling really fouls up things in the shop where it counts. It causes a feast or famine environment—nothing to do for one month, then a deluge the next. It’s terrible for the employees, not to mention the supervisors who are trying to run an efficient operation. Your idea may make the income statements look good for now, but the whole company will suffer in the long run.”


Chuck intervened. “OK, you guys, calm down. Tim may have a good idea or he may not, but at least it’s worth looking into. I propose that you all work up two sets of figures, one assuming level production and one matching production with sales. We’ll look at them both and see if Tim’s idea really does produce better results. If it does, we’ll check it further against other issues Pop is concerned about and then make a decision on which alternative is better for the firm.”


Table 3 (continued) April May June July August September


Sales Forecast


Sales (units) ................................. 500 1,000 1,000 1,000 500 250 Sales (unit price: $3,000) ............. $1,500,000 $3,000,000 $3,000,000 $3,000,000 $1,500,000 $ 750,000 Cash Receipts Schedule


50% cash ...................................... $ 750,000 $1,500,000 $1,500,000 $1,500,000 $ 750,000 $ 375,000 50% from prior month’s sales ...... $ 450,000 $ 750,000 $1,500,000 $1,500,000 $1,500,000 $ 750,000 Total cash receipts ................. $1,200,000 $2,250,000 $3,000,000 $3,000,000 $2,250,000 $ 1,125,000 Cash Payments Schedule


Production in units ...................... 400 400 400 400 400 400 Production costs (each = $2,000) $ 800,000 $ 800,000 $ 800,000 $ 800,000 $ 800,000 $ 800,000 Overhead ..................................... $ 200,000 $ 200,000 $ 200,000 $ 200,000 $ 200,000 $ 200,000 Dividends and interest ................. 0 0 0 0 $1,000,000 0 Taxes ........................................... $ 150,000 0 0 $ 300,000 0 0 Total cash payments .............. $1,150,000 $1,000,000 $1,000,000 $1,300,000 $2,000,000 $1,000,000 Cash Budget; Required Minimum Balance is $125,000


Cash flow ..................................... 50,000 1,250,000 2,000,000 1,700,000 250,000 125,000 Beginning cash ............................. 125,000 125,000 125,000 125,000 400,000 650,000 Cumulative cash balance ............. 175,000 1,375,000 2,125,000 1,825,000 650,000 775,000


Monthly loan or (repayment) .......... ($ 50,000) ($1,250,000) ($2,000,000) ($1,425,000) 0 0 Cumulative loan........................... $4,675,000 $3,425,000 $1,425,000 0 0 0 Ending cash balance .................... $ 125,000 $ 125,000 $ 125,000 $ 400,000 $ 650,000 $ 775,000


Copyright © 2017 by University of Phoenix. All rights reserved. Week 2 Case Study


FIN/486 Version 6 4


Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.


Table 4 Total Current Assets First Year


Cash Accounts


Receivable* Inventory


Total Current Assets


October ............. $125,000 + $225,000 + $1,300,000 = $1,650,000 November ......... 125,000 112,500 1,950,000 2,187,500 December ......... 125,000 37,500 2,700,000 2,862,500 January ............. 125,000 0 3,500,000 3,625,000 February ........... 125,000 0 4,300,000 4,425,000 March ............... 125,000 450,000 4,500,000 5,075,000 April .................. 125,000 750,000 4,300,000 5,175,000 May ................... 125,000 1,500,000 3,100,000 4,725,000 June .................. 125,000 1,500,000 1,900,000 3,525,000 July .................... 400,000 1,500,000 700,000 2,600,000 August ............... 650,000 750,000 500,000 1,900,000 September ........ 775,000 375,000 800,000 1,950,000


* Equals 50 percent of monthly sales


Table 5 Cumulative loan balance and interest expense (1% per month)


October November December January February March


Cumulative loan balance .................... $ 550,000 $1,212,500 $2,062,500 $3,175,000 $4,175,000 $4,725,000 Interest expense at (prime, 8.0%, + 4.0%) 12.00% ............ $ 5,500 $ 12,125 $ 20,625 $ 31,750 $ 41,750 $ 47,250


April May June July August September


Cumulative loan balance .................... $4,675,000 $3,425,000 $1,425,000 0 0 0 Interest expense at (prime, 8.0%, + 4.0%) 12.00% ............ $ 46,750 $ 34,250 $ 14,250 0 0 0


Total interest expense for the year: $254,250


Copyright © 2017 by University of Phoenix. All rights reserved. Week 2 Case Study


FIN/486 Version 6 5


Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.


Required Activities:


1. Reference tables 1 through 5 to complete the following:


A. Reproduce these tables if Tim’s suggestion were implemented; that is, change the Production This Month column in Table 2 from 400 each month to 150, 75, 25, and so on, to match Sales in the next column.


B. Recompute the remainder of Table 2, and Tables 3, 4, and 5 based on the new production numbers. Note: Beginning inventory is still 400 units. Beginning cash is still $125,000 and that remains the minimum required balance.


C. Write a one paragraph summary of what the new computations reflect and what you would suggest as a result of your findings.


2. Reference table 5 to calculate how much Tim’s suggestion would save in interest expense in a year.


A. Use your recomputed figures in Table 5 from question 1 to summarize what the change would offer as a savings from the total interest expense. Justify your perspective on whether those findings would be a positive point for Tim’s suggestion or a positive point for Roy (“Pop”).


3. Assume that there is an added expense for each sales dollar of .5 percent (.005). Based on this fact and the information computed in question 2, is seasonal production justified?


A. Compute the total sales using table 3 ( original or recomputed table can be sued) B. Apply the added expense and identify what the expense amount will do (increase/decrease


and by how much). C. Compare the rate of the added expense burden to the interest savings computed in


question 2 of table5. D. Write a one paragraph summary of your findings. Include if you feel the seasonal production


plan is justified or not and why you are making the formal recommendation to implement the change or not.

Homework is Completed By:

Writer Writer Name Amount Client Comments & Rating
Instant Homework Helper

ONLINE

Instant Homework Helper

$36

She helped me in last minute in a very reasonable price. She is a lifesaver, I got A+ grade in my homework, I will surely hire her again for my next assignments, Thumbs Up!

Order & Get This Solution Within 3 Hours in $25/Page

Custom Original Solution And Get A+ Grades

  • 100% Plagiarism Free
  • Proper APA/MLA/Harvard Referencing
  • Delivery in 3 Hours After Placing Order
  • Free Turnitin Report
  • Unlimited Revisions
  • Privacy Guaranteed

Order & Get This Solution Within 6 Hours in $20/Page

Custom Original Solution And Get A+ Grades

  • 100% Plagiarism Free
  • Proper APA/MLA/Harvard Referencing
  • Delivery in 6 Hours After Placing Order
  • Free Turnitin Report
  • Unlimited Revisions
  • Privacy Guaranteed

Order & Get This Solution Within 12 Hours in $15/Page

Custom Original Solution And Get A+ Grades

  • 100% Plagiarism Free
  • Proper APA/MLA/Harvard Referencing
  • Delivery in 12 Hours After Placing Order
  • Free Turnitin Report
  • Unlimited Revisions
  • Privacy Guaranteed

6 writers have sent their proposals to do this homework:

University Coursework Help
Helping Hand
Top Essay Tutor
Writer Writer Name Offer Chat
University Coursework Help

ONLINE

University Coursework Help

Hi dear, I am ready to do your homework in a reasonable price.

$102 Chat With Writer
Helping Hand

ONLINE

Helping Hand

I am an Academic writer with 10 years of experience. As an Academic writer, my aim is to generate unique content without Plagiarism as per the client’s requirements.

$100 Chat With Writer
Top Essay Tutor

ONLINE

Top Essay Tutor

I have more than 12 years of experience in managing online classes, exams, and quizzes on different websites like; Connect, McGraw-Hill, and Blackboard. I always provide a guarantee to my clients for their grades.

$105 Chat With Writer

Let our expert academic writers to help you in achieving a+ grades in your homework, assignment, quiz or exam.

Similar Homework Questions

Jetblue airways ipo valuation excel - List the strategic objectives of aggregate planning - What is mid digit hair - Organizational behavior 13th edition wiley pdf - Bliss personal radiant heater - Tone of greasy lake - Does bj's accept american express - History of mathematics in africa - Social work role play scripts - How did cheryl strayed meet brian lindstrom - Interpersonal communication concepts in the blind side - Thermal decomposition of potassium chlorate - Blue eyed documentary online - 5 types of qualitative research - Vocabulary workshop level e unit 6 answers - Week 6 no plagiarism - Jobek do brasil case study - 2015 methods exam 1 - A well chosen target market embodies the following characteristics - Calculating kinetic energy worksheet - Acca colleges in ahmedabad - Mcdonald & hagen wealth management - Grainger business model and strategy for growth - Hotel saville south yarra - Redo - Suppose you plant a seed and observe that a tree of large mass grows from it - Statusofmind social media and young people's mental health and wellbeing - Graphing practice answer key - Discussion - How to calculate liquidity premium theory - 107NR - Corn starch production cost - MSCB_CLA2 - Directions to loyola university - Srm software should be capable of quizlet - Leadership development programs in hsos - Alliterative adjective name game - Lake of egypt marina inc - Clinical decision support system, healthcare reimbursement, health-related views and laws are shaped by social, political, and historical factors discussion - Robbie maddison las vegas jump - The early childhood australia code of ethics - Apple inc swot analysis 2012 - Define the key biographical characteristics - Yoky matsuoka net worth - Case study on consumer behaviour with questions and answers - Discussion about financial managers - Vce business management task words - Model breaks network communications down into seven functional layers - The tale of chunhyang moral lesson - United airlines guitar scandal - Crisis communication essay - Bending machine risk assessment - Paulo freire pedagogy of the oppressed pdf download - Craig weatherup net worth - International journal of electrical electronics and computers - Windshield survey nursing - What is the ultimate goal of continuity editing - Art-labeling activity: the structure of the epidermis - Table of standard reduction potentials - Thomas and kilmann conflict mode instrument pdf - Organizational behavior schermerhorn 13th edition - All at onceness of a painting - Tris free base vs tris base - Essay - Application of laplace transform in circuit analysis - Pes statement for diabetes type 2 - 4060 crystal oscillator circuit - Examples of noncash investing and financing activities - Discussion question #2 - Hawaiian god of wind - Ayaz meaning in quran - The evolution of human skin color case study answer key - Oceanview marine company summary of possible misstatements - Fin 534 homework set 1 - Valuation of car perquisite - Moran owns a building - Organisational structure of kfc india - Lamb to the slaughter what you gonna do - Collins math frameworking 3rd edition answers - Assignment 1 professional email message - The payback method helps firms establish and identify - Jones design wishes to estimate the value of its - Criminal scene evidence - Imperial jewelers is considering a special order - Double victory ronald takaki sparknotes - Saving sourdi literature to go - Syrian War And EU In A Vulnerable Situation - Anagrams of christmas carols and songs - The science of snowboarding - Julius caesar cause of death - Library management system analysis - Sterling 10 alarm control panel - Sucrose potato osmosis experiment - Grand harvest square raid blade and soul - The color purple essat due in 72 hours - Discussion Question - Research paper topics for othello - Children's prayer for ash wednesday - What are the family resources and needs - Zara fast fashion harvard business school