Construct an Income Statement & Balance Sheet (asset portion only) Determine Inventory turnover rate, Asset turnover rate, and ROA for this base case.
BASE CASE
A Christchurch manufacturer of cables and electronic components reports the 2020 results shown in the table.
PROPOSED CHANGES
The supply chain manager is working to reduce inventory levels by 30% (given the low inventory turnover rate), but is also concerned that reduced inventories will reduce product availability for fulfilling customer orders. Therefore, a $250,000 investment in new processing equipment will be required. The benefit of this new equipment will be a reduction in COGS to 38% of sales revenue. The new production process will also require a more premium form of transportation for customer delivery so as maintain the current cycle time that customers expect. Transportation costs are expected to rise by 5% over current levels. No other changes are expected.
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Construct an Income Statement &
Balance Sheet (asset portion only) -
Determine Inventory turnover rate, Asset turnover rate, and ROA for this base case.
SOLUTION:-
1.
| INCOME STATEMENT |
| sales | $ 82,500,000 | |
| cost of goods sold (82,500,000 X 40%) | $ 33,000,000 | |
| gross profit | $ 49,500,000 | |
| less:-opening expense | ||
| transportation expense | $ 17,500,000 | |
| warehouse expense | $ 9,000,000 | |
| inventory carrying cost | $ 2,840,000 | |
| other operating cost | $ 16,000,000 | |
| total operating expenses | ($ 45,340,000) | |
| NET INCOME | $ 4,160,000 |
| BALANCE SHEET |
| ASSETS | ||
| CURRENT ASSETS | ||
| accounts receivable | $ 2,500,000 | |
| average inventory | $ 14,200,000 | |
| other current asset | $ 7,000,000 | |
| TOTAL CIRRENT ASSETS | $ 23,700,000 | |
| NON CURRENT ASSETS | ||
| fixed assets | $ 45,000,000 | |
| TOTAL ASSETS | $ 68,700,000 |
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