Accounting Answers

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Management

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Nov 24, 2024

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1. Tesla is different from traditional motor manufacturers in several ways:  Sales Process: Tesla sells directly to consumers through its own stores and website, bypassing the traditional dealership model used by established manufacturers like GM. This direct-to-consumer approach is often referred to as a retail play.  Manufacturing Process: Tesla aims to control the entire vehicle design and manufacturing process, from raw materials to the electric motor. This integrated manufacturing approach is closer to Henry Ford's original factory concept, where Ford controlled the entire manufacturing chain.  Customer Experience: Tesla focuses on customer convenience and often releases software updates "over the air," eliminating the need for customers to visit dealerships for updates. This customer-centric approach is sometimes likened to an "iPhone on wheels."  Agility: Tesla is known for its agile management approach, iterating changes to products and customer experiences rapidly. It follows short iterative cycles from idea to product launch. Strengths of Tesla's business model:  Direct sales cut out middlemen, potentially increasing profit margins.  Continuous software updates and a focus on customer experience build brand loyalty.  Agile management allows rapid adaptation to market changes.

Weaknesses of Tesla's business model:  Direct sales may limit reach in areas where traditional dealerships are prevalent.  High dependence on technological innovation can be risky.  Continuous capital investment for manufacturing facilities can strain finances. 2. Inventory:  Days Inventory: Days Inventory refers to the period taken by a company to sell the inventory it has. For Tesla, it helps assess how efficiently the company manages its inventory turnover.  Separation of Service Parts: Separating service parts from other types of inventory is logical because service parts may have different demand patterns and urgency compared to raw materials or finished goods.  Inventory Management: Tesla's days inventory is an important metric to evaluate its inventory management. In 2019, it decreased slightly to USDm 932 compared to 2018 which was USDm 1428, indicating better inventory turnover. However, raw materials increased while finished goods decreased with a range of USDm 1581 to 1356, suggesting potential issues with production or demand.  Critical Assumptions: Tesla values its inventory using the lower of cost or market (LCM) and typically uses the FIFO (First In, First Out) method. LCM requires management judgment to assess future demand and market conditions that might affect inventory value.

 Impact of LIFO/FIFO: Tesla's choice of FIFO impacts how costs are allocated to inventory and, consequently, cost of goods sold. LIFO (Last In, First Out) would yield different results, affecting both inventory value and the income statement. 3. Fixed Assets:  Components of Depreciation: To compute depreciation, you need the asset’s cost, its useful life estimated period, and the projected salvage value. The method of depreciation (e.g., straight-line) is also a critical component.  Management Judgment: Management makes key judgments in estimating useful life and salvage value, which can impact the amount of depreciation expense reported. 4. Depreciation Expense:  Journal Entry: The depreciation expense of $964 would be reported by putting "Depreciation Expense" in the debit section and "Accumulated Depreciation" in the credit section of $964  Contra-Asset: The contra-asset account includes the accumulated depreciation, which results to the balance sheet being modified with a reduction of the asset’s book value.  Examples of Contra-Assets: Other examples of contra-assets include "Allowance for Doubtful Accounts" and "Allowance for Obsolete Inventory." 5. Depreciation Methods:

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 Tesla primarily uses the straight-line method for depreciation. However, other methods like declining balance or units of production can be considered.  Case for Another Method: In tax matters, Tesla could consider using the method of declining balance, which allows it to be deducted in large amounts for the early years, aligning with its heavy initial investments in equipment and machinery. 6. Intangible Assets:  Intangible assets are assets that are not physical and have a value that is long- term. Examples include patents, trademarks, copyrights, and goodwill.  Tesla has relatively few intangible assets because its value is heavily based on technology and brand reputation rather than traditional intangibles like patents or trademarks. Tesla's innovation is more in the form of tangible assets like battery technology and electric vehicle design.

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