Questions:
1. If a firm’s net income (profits before taxes) is $300,000 and it has total assets of $1.5 million, what is its return on assets? 10 Points
2. If a firm’s total assets is $2.5 million and its return on assets is 15 percent, what is its net income? 10 Points
3. If a firm is able to sustain the same level of operations in terms of sales and administrative expenses but reduces its materials cost by $60,000 through smarter purchases, what is the profit-leverage effect on gross profits? What is the profit-leverage effect on profits before taxes? 10 points
4. If a firm’s cost of goods sold is $3.5 million and its average inventory is $800,000, what is the inventory turnover? 10 points
5. If a firm’s cost of goods sold is $5 million and its inventory turnover is 12 times, what is the average dollar amount of inventory? 10 points
6. If a firm’s inventory turnover is 8 times and its average inventory is $260,000, what is the cost of goods sold? 10 points
7. A retailer in Las Vegas has an ending inventory of $250,000 as at December 31, 2019 and the following 2020 accounting information. 20 Points total
Month
Ending Inventory
Cost of Goods Sold
January
$225,000
$1,200,000
February
$325,000
$1,250,000
March
$240,000
$1,350,000
April
$325,000
$1,500,000
May
$260,000
$950,000
June
$220,000
$850,000
July
$85,000
$1,650,000
August
$156,000
$1,325,000
September
$220,000
$1,750,000
October
$265,000
$850,000
November
$400,000
$2,200,000
December
$350,000
$3,500,000
Compute the monthly inventory turnover ratio for each of the twelve months that follow the December 2020 ending inventory... 9 points
What are the annual cost of goods sold and the average inventory for the year? 9 points
Compute the annual inventory turnover ratio. How is the retailer’s performance compared to the industry standard, assuming its business is similar to Wal-Mart’s? 2 points Note See page 23
8. A buyer received bids from three suppliers for a vital component part for its latest product. Given the following information, use total cost analysis to determine which supplier should be chosen. Late delivery of the component results in 65 percent lost sales and 30 percent back orders of finished goods. 20 Points total
Order lot size
2,000
Requirements (annual forecast)
240,000 units
Weight per engine
40 pounds
Order processing cost
$200/order
Inventory carrying rate
20% per year
Cost of working capital
10% per year
Profit margin
15%
Price of finished goods
$10,500
Back-order cost
$120 per unit
Unit Price
Supplier 1
Supplier 2
Supplier 3
1 to 999 units/order
$200.00
$205.00
$198.00
1,000 to 2,999 units/order
$195.00
$190.00
$185.00
3,000 + units/order
$190.00
$185.00
$180.00
Tooling Cost
$12,000
$10,000
$15,000
Terms
2/10, net 30
1/15, net 30
1/10, net 20
Distance
120 miles
100 miles
150 miles
Supplier Quality Rating
2%
1%
2%
Supplier Delivery Rating
1%
1%
2%
Truckload (TL ≥ 40,000 lbs): $1.30 per ton-mile
Less-than-truckload (LTL): $1.80 per ton-mile
Note: per ton-mile = 2,000 lbs per mile; number of days per year = 365
I highly recommend that you create tables (Excel Spreadsheets) like the example on page 61 of your textbook Figure 2.6. That will make it easier to compare suppliers.