Financial Problems & Analysis #2:
FOR FULL CREDIT I MUST SEE THE COMPUTATIONS SUPPORTING YOUR FINAL ANSWER
1. Using the Balance Sheet for Wanderlust Travel Excursions and Memories business shown below, do the following.
A. Create a Pro Forma Balance Sheet for the following year using the percentage of sales method.
B. If next year’s sales forecast increases to $225,000, profit margin is 15%, and the owner payout ratio is 90%, what is required in new financing?
Wanderlust Travel Excursion and Memories
Pro Forma Balance Sheet
Total Sales Cu
ent Year $175,000
Percentage of Sales (%)
Forecast Sales Next Year $200,000
Assets
Cu
ent Assets
Cash
$ 5,694
Accounts Receivable
19,662
Inventory
3,381
Total Cu
ent Assets
$28,737
Fixed Assets
Furniture and Fixtures
$ 5,595
Transportation Equipment
25,456
Total Fixed Assets
$31,051
Total Assets
$59,788
Liabilities and Owners’ Equity
Cu
ent Liabilities
Notes Payable
$ 15,456
Accrued Taxes Payable
3,598
Total Cu
ent Liabilities
$ 19,054
Long Term Debt
18,654
Total Liabilities
$ 37,708
Owner’s Equity
22,080
Total Liabilities and Owner’s Equity
$ 59,788
2. You have taken over the finance function of a large and successful outdoor gear store that sells primarily camping equipment such as tents, cooking gear, backpacks, and other smaller items. The owner of this store wants to get a better handle on the variation of sales of tents over the course of the year. She asks you to develop a process by which sales forecasts of tents can be made with more reliability. Up to now, there has not been a systematic process in place for forecasting tent sales, she just looked at what sales were each month, and estimated what she thought they might be in the future, based purely on her intuition. You decide to create a table for three forecasting methods to illustrate each approach to the store owner, compute the forecast for January 2021, and provide an indication of which approach is best.
W1 = .2; W2 = .3; W3 = 5.
3-Moving Average
Weighted Moving Average
Exponential Smoothing
Month/ Yea
Actual Sales
Forecast
Actual Difference
Absolute Deviation
Forecast
Actual Difference
Absolute Deviation
Forecast
Actual Difference
Absolute Deviation
Oct 19
1350
Nov 19
1375
Dec ‘19
1486
1400.00
Jan ‘20
1228
1403.67
175.67
175.67
1425.50
197.50
197.50
1421.50
193.50
193.50
Feb ‘20
1155
1363.00
208.00
208.00
1334.80
179.80
179.80
1373.13
218.13
218.13
Mar ’20
1347
1289.67
-57.33
57.33
1243.10
-103.90
103.90
1318.59
-28.41
28.41
Apr ’20
1456
1243.33
-212.67
212.67
1265.60
-190.40
190.40
1325.70
-130.30
130.30
May ’20
1428
1319.33
-108.67
108.67
1363.10
-64.90
64.90
1358.27
-69.73
69.73
June ’20
1478
1410.33
-67.67
67.67
1420.20
-57.80
57.80
1375.70
-102.30
102.30
July ’20
1500
1454.00
-46.00
46.00
1458.60
-41.40
41.40
1401.28
-98.72
98.72
Aug ’20
1565
1468.67
-96.33
96.33
1479.00
-86.00
86.00
1425.96
-139.04
139.04
Sept ’20
1478
1514.33
36.33
36.33
1528.10
50.10
50.10
1460.72
-17.28
17.28
Oct ’20
1348
1514.33
166.33
166.33
1508.50
160.50
160.50
1465.04
117.04
117.04
Nov ‘20
1384
1463.67
79.67
79.67
1430.40
46.40
46.40
1435.78
51.78
51.78
Dec ’20
1441
1403.33
-37.67
37.67
1392.00
-49.00
49.00
1422.83
-18.17
18.17
Jan ‘21
Total
n
Mean
A. The store owner would like you to explain the approach you took. Explain to her how each of the columns for the forecasts were computed and why.
B. Given the information in the table above, compute the January 2021 forecasts for each method. Place your answer in the appropriate box or write the January 2021 forecasts for each method below.
C. What forecasting model would you report to the store owner as the most effective? How did you determine this? Show any computations necessary and put the answers in the appropriate boxes or write your answers in the space below.
3. You run a business, located in a populous Western United States mountain community that sells outdoor adventure equipment such as backpacks and high-altitude clothing, and other camping and climbing gear. One of your prominent suppliers of backpacks is offering a significant discount on the new season model of backpack that is particularly popular to climbers in the area and throughout the United States. They will offer a 25% discount on the usual wholesale cost of these backpacks to your business, however you must purchase two times the usual number of backpacks in a single order (volume purchasing).
A. Without wo
ying about actual numbers,
iefly describe the advantages and disadvantages of taking this discount on the high-volume purchase, particularly from the perspective of managing your working capital.
B. Describe what Economic Order Quantity is and what information you need to compute it.
C. Describe the Just-in-Time model of ordering inventory
D. Do you think these models work for someone who runs a business that sells such perishable items and goods as a restaurant?
4. Your ORV and Snowmobile Company gives terms on sales of 2/10, net 30. You have annual credit sales of $625,000 and average accounts receivable of $50,000.
A. What is your accounts receivable turnover? Be sure to describe precisely what this number means.
B. What is your average daily collection? Be specific.
C. What is the relationship between the terms that your business gives and your average daily collection? Is there anything your business needs to do in response to this relationship?
D. Now assume you have accounts receivable of $85,000, what is your average accounts receivable turnover and average collection period? What should you do, if anything?
5. You are managing a business that stocks backpacks for extreme adventure use. You have one purchasing agent who receives an annual salary of $60,000. She processes 3,000 purchase orders for backpacks per year. Average backpack inventory in storage is $85,000, and the total cost of running the backpack portion of the warehouse is $20,000. You are told that your company purchases 1,250 backpacks per year from the manufacturer at a cost of $300.00 per backpack.
A. Using the Economic Order Quantity Formula (EOQ), how many backpacks should be ordered at one time?
6. Je
y’s and Mo’s Ski Shop receives the following trade discounts for a particular type of downhill ski: 30/20/10. The vendor’s price list indicates that 30% off list price is for purchase the skis in quantities of 30 pair or more; 20% off list price is for assembling the skis and bindings for customers; and 10% is for sales promotion and local advertising.
A. If the manufacturer’s list price is $500 per pair, what should Je
y’s and Mo’s Ski Shop pay for each pair if they order 30 pairs at a time, assembles the skis with the bindings, and displays and advertises them?
B. What is Je
y’s and Mo’s Ski Shop’s single equivalent discount rate?
C. How much will Je
y’s and Mo’s Ski Shop pay the manufacturer for each bike if they order 10 pairs of skis at a time, and takes advantage of all other discounts?
D. If Je
y’s and Mo’s Ski Shop is given terms of 4/15, n/30, what does this mean?
E. If Je
y’s and Mo’s Ski Shop pays within 20 days, how much will they pay the manufacturer for the order of 30 pairs of skis.