1.
Browning Manufacturing Company
Projected 2010 Statement of Cost of Goods Sold
Finished goods inventory, 1/1/10
257,040.0 0
Work in process inventory,
1/1/10 172,200.00
Materials used 811,000.00
Plus: Factory expenses
Direct manufacturing labor 492,000.00 Factory overhead:
Indirect manufacturing
labor 198,000.00
Power, heat and light
135,600.0 0
Depreciation of plant 140,400.00 Social Security taxes 49,200.00 Taxes and insurance,
factory 52,800.00
Supplies 61,200.00 637,200.00 2,112,400.00 Less: Work in process
inventory, 12/31/10 210,448.00
Cost of goods manufactured
(i.e. Completed) 1,901,952.00
2,158,992.0 0
Less: Finished goods
inventory, 12/31/10 352,368.00
Browning Manufacturing Company Projected 2010 Income Statement
Sales 2,562,000.00
Less: Sales returns and
allowances 19,200.00 Sales
discounts
allowed 49,200.00 68,400.00
Net Sales 2,493,600.00
Less: Cost of goods sold
(per schedule 1) 1,806,624.00
Gross margin 686,976.00
Less: Selling and administrative expense 522,000.00 Operating income 164,976.00 Less: Interest expense 38,400.00
Income before federal and state
income tax 126,576.00
Less: Estimated income
tax expense 58,000.00
Browning Manufacturing Company Projected 2010 Balance Sheet
Asse ts
Current Assets:
Cash and marketable securities 443,640.00
Accounts receivable (net of
allowance for DA) 201,360.00
Inventories:
Materials 124,520.00
Work in process 210,448.00
Finished goods 352,368.00
Supplies 22,080.00 709,416.00
Prepaid taxes and insurance 91,920.00
Total current assets 1,446,336.00
Other assets:
Manufacturing plant at cost 2,822,400.00
Less: Accumulated depreciation 1,047,600.00 1,774,800.00
Total Assets 3,221,136.00
Liabilities and Shareholders' Equity Current liabilities: Accounts payable 288,360.00 Notes payable 552,840.0 0
Income taxes payable 5,800.00
Total current liabilities 847,000.00
Shareholders' equity:
Capital stock 1,512,000.00
2.
Accounts 2009 2010 % Inc/Dec
Sales 2,295,600.00 2,562,000.00 12% Increase Sales returns and allowances 17,640.00 19,200.00 9% Increase Sales discounts allowed 43,920.00 49,200.00 12% Increase Cost of goods sold (per
schedule) 1,568,280.00 1,806,624.00 15% Increase Selling and administrative
expense 437,160 .00 522,000 .00 19% Increas e Interest expense 34,080.00 38,400.00 13% Increase Estimated income tax
expense 89,520.00 58,000.00 -35% Decrease Cash and marketable
securities 118,440 .00 443,640 .00 275% Increas e Accounts receivable (net)
311,760 .00 201,360 .00 -35% Decreas e Materials 110,520.00 124,520.00 13% Increase Work in process 172,200.00 210,448.00 22% Increase Finished goods 257,040.00 352,368.00 37% Increase Supplies 17,280.00 22,080.00 28% Increase Prepaid taxes and insurance 66,720.00 91,920.00 38% Increase Manufacturing plant at cost
2,678,400. 00 2,822,400. 00 5% Increas e
Accounts payable 185,760.00 288,360.00 55% Increase Notes payable 288,840.00 552,840.00 91% Increase Income taxes payable
9,00 0.00 5,80 0.00 -36% Decreas e
Capital stock 1,512,000.00 1,512,000.00 0% -Retained earnings 829,560.00 862,136.00 4% Increase
From the table above, it is noted that, for 2010, there is a remarkable increase in the Cash and marketable securities account by 319%. Further, there is also a decrease in the Accounts receivable account, which is good because there is increase in cash due to the collections forecasted.
On the other hand, the accounts and notes payable accounts also increased by 55% and 91%, respectively. This means that, aside from the collections of accounts receivable in 2010, the other reason for increase in cash inflow is due to the accounts and notes payables acquired.
Another notable difference is that the gross profit in 2010 is 2% higher than that of 2009 (30% vs 28%). However, the income in 2010 decreases by 35% as compared in 2009. One factor that may attributable to this decrease is the increase in the selling and administrative expense account, which increased by 19% in 2010.
3. The management will not achieve its notes payable repayment goal of a year-end cash balance of approximately $150,000 after paying off at least $350,000 and possibly as much as $400,000 of the notes payable to the bank. This is because at the end of 2010, cash and marketable securities account will have 443,640.00. If the company will pay off the minimum of $350,000, cash and marketable securities account will have and ending balance of $93,640.00, which is $4,160 less than its $150,000 goal.
In order to achieve its year-end cash balance goal, the company may reduce its payable accounts, particularly its notes payable account. Also it may reduce some of its expenses in order to increase the cash and net income accounts.
4. The inventory turnover of 2010 is lower than 2009 (a difference by 1). A low turnover implies poor sales and, therefore, excess inventory. Thus, management’s inventory turnover goal will not be achieved. To improve, the company’s inventory turnover, the company should maximize its relationship with its suppliers and customers. With this, your supplier is enabled to produce and deliver materials in a timely, lower cost fashion that allows you to minimize your inventory. On the other hand, when you establish relationships with your customers, you can enable them to make their demand for products more predictable thereby allowing you to minimize finished product inventory without failing to meet their needs for volume and timeliness.
5. In terms of the company’s trade credit standing, the budget may indicate that the company may not be able to pay its obligation when they become due. This may eventually mean poor creditor relationship that may affect the company’s production and sales in the future.