62364 – Task: Final Term Assignment (60% of the Final grade)You

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Task: Final Term Assignment (60% of the Final grade)You must answer all the questions in the proposed business case. This task assesses thefollowing learning outcomes:• Critically understand and apply all the steps and analysis of financial ratios.• Properly elaborate a company´s financials.• Critically interpret a company’s financials in relation to cost analysis and manufacturing productivity.LAUNCH: WEEK 8 / DELIVERY: 13 DECEMBER, 2020, 23:59HRS ON MOODLESubmission file format: Excel document with all the answers, clearly identifying all steps, results, journals and including comments besides each answer.TASKS (100 points)Problem 1.You have been approached by a distant relative with a proposal to buy a 15 percent interest in a new clothing brand “Siam Red” . The firm manufactures prima cotton shirts, pants and other accessories like ties and hankerchiefs.MCO103 MANAGERIAL ACCOUNTING Task brief & rubricsYour relative, Uncle Pete shows you the increase in sales that has taken place over the last three years, as evident by the income statement, Exhibit 1. The annual growth rate is 25 percent. A balance sheet for a similar time period is shown in Exhibit 2, and selected industry ratios are presented in Exhibit 3. Note the industry growth rate in sales is only 10 to 12 percent per year. There was a steady real growth of 3 to 4 percent in gross domestic product during the period under study.Exhibit 1SIAM REDIncome Sheet20X1 20X2 20X3Sales (all on credit)…………………………………….. $1,200,000 $1,500,000 $1,875,000Cost of goods sold ……………………………………… 800,000 1,040,000 1,310,000Gross profit ………………………………………………. $ 400,000 $ 460,000 $ 565,000Selling and administrative expense*………………. 239,900 274,000 304,700Operating profit (EBIT) ………………………………. $ 160,100 $ 186,000 $ 260,300Interest expense …………………………………………. 35,000 45,000 85,000Net income before taxes ……………………………… $ 125,100 $ 141,000 $ 175,300Taxes ………………………………………………………. 36,900 49,200 55,600Net income ……………………………………………….. $ 88,200 $ 91,800 $ 119,700Shares ……………………………………………………… 30,000 30,000 38,000Earnings per share ………………………………………*Includes $15,000 in lease payments for each year. $ 2.94 $ 3.06$ 3.15Exhibit 2SIAM REDBalance SheetAssets 20X1 20X2 20X3Cash ………………………………………………………… $ 30,000 $ 40,000 $ 30,000Marketable securities………………………………….. 20,000 25,000 30,000Accounts receivable …………………………………… 170,000 259,000 360,000Inventory ………………………………………………….. 230,000 261,000 290,000Total current assets …………………………………. $ 450,000 $ 585,000 $ 710,000Net plant and equipment ……………………………… 650,000 765,000 1,390,000Total assets ………………………………………………. $1,100,000 $1,350,000 $ 2,100,000Liabilities and Stockholders’ EquityAccounts payable ……………………………………….$ 200,000$ 310,000 $ 505,000Accrued expenses ………………………………………. 20,400 30,000 35,000Total current liabilities ……………………………. $ 220,400 $ 340,000 $ 540,000Long-term liabilities …………………………………… 325,000 363,600 703,900Total liabilities ………………………………………. $ 545,400 $ 703,600 $ 1,243,900Common stock ($2 par) ………………………………. 60,000 60,000 76,000Capital paid in excess of par ………………………… 190,000 190,000 264,000Retained earnings ………………………………………. 304,600 396,400 516,100Total stockholders’ equity ……………………….. $ 554,600 $ 646,400 $ 856,100Total liabilities and stockholders’ equity ……….. $1,100,000 $1,350,000 $2, 100,000Exhibit 3Selected Industry Ratios20X1 20X2 20X3Growth in sales …………………………… — 10.00% 12.00%Profit margin ………………………………. 7.71% 7.82% 7.96%Return on assets (investment) ………… 7.94% 8.86% 8.95%Return on equity ………………………….. 14.31% 15.26% 16.01%Receivable turnover……………………… 9.02x 8.86x 9.31xAverage collection period ……………… 39.9 days 40.6 days 38.7 daysInventory turnover ……………………….. 4.24x 5.10x 5.11xFixed asset turnover …………………….. 1.60x 1.64x 1.75xTotal asset turnover ……………………… 1.05x 1.10x 1.12xCurrent ratio ……………………………….. 1.96x 2.25x 2.40xQuick ratio …………………………………. 1.37x 1.41x 1.38xDebt to total assets ………………………. 43.47% 43.11% 44.10%Times interest earned……………………. 6.50x 5.99x 6.61xFixed charge coverage ………………….. 4.70x 4.69x 4.73xGrowth in EPS ……………………………. — 10.10% 13.30%The stock in the corporation has become available due to the ill health of a current stockholder, who is in need of cash. The issue here is not to determine the exact price for the stock, but rather whether Siam Red represents an attractive investment situation. Although you have a primary interest in the profitability ratios, you need to take a close look at all the ratios. You are yet to determine your investment strategy, as you prefer to analyze the overall condition of the firm. The firm does not currently pay a cash dividend, and return to the investor must come from selling the stock in the future. After doing a thorough analysis (including ratios for each year and comparisons to the industry), what comments and recommendations do you have about how you will proceed?Problem 2During this pandemic year, Siam Red sold 35,000 units of its disposable hankerchiefs for $16 each. Manufacturing and selling the product required $120,000 of fixed manufacturing costs and $180,000 of fixed selling and administrative costs. Its per unit variable costs follow.Material $ 4.00Direct labor (paid on the basis of completed3.00 units)Variable overhead costs 0.40 Variable selling and administrative costs 0.20Through research and development, they discovered a new silk cotton hybrid fabric that will reduce material costs by 60% and direct labor costs by 40% and will not affect product quality or marketability. Management is considering an increase in the unit sales price to reduce the number of units sold because the factory’s output is nearing its annual output capacity of 40,000 units. Management is considering two options, the first being the company will keep the price at the current level and sell the same volume as last year. They expect an increase in income due to reduced costs of this new fabric. The second option, Siam Red will increase it price by 25%. This plan will decrease unit sales volume by 10%. They hypothesize, that under both options, the total fixed costs and the variable costs per unit for overhead and for selling and administrative costs will remain the same.1. Compute the break-even point in dollar sales for both (a) plan 1 and (b) plan 2.2. Prepare a forecasted contribution margin income statement with two columns showing the expected results of plan 1 and plan 2. The statements should report sales, total variable costs, contribution margin, total fixed costs, profit before tax, income taxes (30% rate), and net profitProblem 3Given the following selected account balances of Siam Red.Sales $ 1,252,000Raw materials inventory, Dec. 31, 2010 39,000Goods in process inventory, Dec. 31, 2010 55,900Finished goods inventory, Dec. 31, 2010 64,750Raw materials purchases 177,600Direct labor 227,000Factory computer supplies used 19,840Indirect labor 49,000Repairs—Factory equipment 7,250Rent cost of factory building 59,000Advertising expense 96,000General and administrative expenses 131,300Raw materials inventory, Dec. 31, 2011 44,700Goods in process inventory, Dec. 31, 2011 43,500Finished goods inventory, Dec. 31, 2011 69,300Prepare its manufacturing statement for the year ended on December 31, 2011.

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