6_Browning Mftg Company Case Solution

Assets Liabilities + Owner's Equity

Cash Accounts Payable

+ - - +118,440$ 144,000$ 788,400$ 185,760$

264,000$ 78,000$ 825,000$

2,604,000$ 492,000$ 66,000$

198,000$

49,200$ 788,400$ 1,076,760$

135,600$ Notes Payable

522,000$ - +38,400$ 288,840$

788,400$ 264,000$

9,000$

36,000$ -$ 552,840$

Interest on Loans

- +38,400$

2,986,440$ 2,490,600$ 495,840$

Sales

Accounts Receivables - +

+ - 2,562,000$

311,760$ 19,200$

2,562,000$ 49,200$

2,604,000$

2,873,760$ 2,672,400$ 201,360$ COGS

Sales Returns & Allowances - +

+ - 1,806,624$

19,200$

49,200$

Discounts Income Taxes Payable

+ - - +9,000$ 9,000$

58,000$

Selling & Admin Expense 9,000$ 67,000$

+ -522,000$

Depreciation Expense

- +Finished Goods Inventory

+ -257,040$ 1,806,624$

1,901,952$

Retained Earnings

- +2,158,992$ 1,806,624$ 352,368$ 36,000$ 829,560$

Work in Process Inventory 68,576$

+ -172,200$ 1,901,952$ 36,000$ 898,136$

811,000$ Capital Stock

1,129,200$ - +1,512,000$

2,112,400$ 1,901,952$ (210,448)$

Materials

+ - - +110,520$ 811,000$

825,000$

935,520$ 811,000$ 124,520$

Direct Manufacturing Labor

+ - - +492,000$

Factory Overhead

Indirect Manufacturing Labor

+ - - +198,000$

Power, heat & light

+ - - +135,600$

Social Security Taxes

+ - - +49,200$

Prepaid Taxes & Insurance, factory

+ -66,720$ 52,800$

78,000$

144,720$ 52,800$ 91,920$

Supplies

+ -17,280$ 61,200$

66,000$

83,280$ 61,200$ 22,080$

Plant & Equipment

+ -2,678,400$ 907,200$

144,000$ 140,400$

2,822,400$ 1,047,600$ 1,774,800$

288,360$

552,840$

58,000$

862,136$

58,000$

Finished goods inventory 1/1/98 257,040$

Work in process inventory 1/1/98 172,200$

Materials used 811,000$

Plus: Factory expenses

Direct Manufacturing Labor 492,000$

Factory overhead

Indirect manufacturing labor 198,000$

Power, heat and light 135,600$

Depreciation of plant 140,400$

Social Security Taxes 49,200$

Taxes and insurance, factory 52,800$

Supplies 61,200$ 637,200$

2,112,400$

Less: Work in process inventory 12/31/98 210,448$

Cost of goods manufactured (completed) 1,901,952$

2,158,992$

Less: Finished goods inventory 12/31/98 352,368$

Cost of goods sold 1,806,624$

Browning Manufacturing Company

Statement of Cost of Goods Sold (Schedule 1)For the Year ended December 31, 1998

COST OF SALES AND INVENTORIESGROUP 1: JENICE JOY SUMAWAY AND MIKE AGENCIA

BM 220 --- PROF. TRINIDAD

Sales 2,562,000$

Less: Sales returns and allowances 19,200$

Sales discounts allowed 49,200$ 68,400$

Net Sales 2,493,600$

Less: Cost of goods sold (Schedule 1) 1,806,624$

Gross Margin 686,976$

Less: Selling and administrative expense 522,000$

Operating Income 164,976$

Less: Interest Expense 38,400$

Income before federal and state income tax 126,576$

Less: Estimated income tax expense 58,000$

Net Income 68,576$

Browning Manufacturing CompanyProjected Income Statement

For the Period Ended 12/31/1998

COST OF SALES AND INVENTORIES

GROUP 1: JENICE JOY SUMAWAY AND MIKE AGENCIA

BM 220 --- PROF. TRINIDAD

Assets Current assets:

Cash and marketable securities 495,840$

Account receivable (net of allowance for doubtful accounts) 201,360$

Inventories:

Materials 124,520$

Less: Cost of goods sold (schedule 1) 210,448$

Finished Goods 352,368$

Supplies 22,080$ 709,416$

Prepaid taxes and insurance 91,920$

Total current assets 1,498,536$

Other assets:

Manufacturing plant at cost 2,822,400$

Less: Accumulated depreciation 1,047,600$ 1,774,800$

Total Assets 3,273,336$

Liabilities and Shareholders' EquityCurrent liabilities:

Accounts payable 288,360$

Notes payable 552,840$

Income taxes payable 58,000$

Total current liabilities 899,200$

Shareholders' equity:

Capital stock 1,512,000$

Retained earnings 862,136$ 2,374,136$

Total Liabilities and Shareholders' Equity 3,273,336$

Browning Manufacturing Company

Projected Balance Sheet

For the Period Ended December 31, 1998

COST OF SALES AND INVENTORIES

GROUP 1: JENICE JOY SUMAWAY AND MIKE AGENCIA

BM 220 --- PROF. TRINIDAD

NET SALES $2,493,600.00COST OF GOODS SOLD

MATERIALS COST:

Materials Inventory, January 1 110,520.00$

Purchases 825,000.00

Plus: Freight-in -

Total Purchases 825,000.00

Materials Available 935,520.00

Less: Materials Inventory, Dec. 31 (124,520.00)

COST OF MATERIALS USED 811,000.00

DIRECT LABOR COST 492,000.00 MANUFACTURING OVERHEAD COST:

Indirect Labor 198,000.00

Factory Heat, Light and Power 135,600.00

Factory Supplies Used 61,200.00

Insurance & Taxes, Factory 52,800.00

Social Security Taxes 49,200.00

Depreciation - Plant & Equipment 140,400.00

TOTAL MANUFACTURING OVERHEAD COST 637,200.00

TOTAL MANUFACTURING COST 1,940,200.00

ADD: Work in Process Inventory, Jan 1 172,200.00

TOTAL: 2,112,400.00

LESS: Work in Process Inventory, Dec. 31 (210,448.00)

COST OF GOODS MANUFACTURED 1,901,952.00

ADD: Finished Goods Inventory, Jan. 1 257,040.00

COST OF GOODS AVAILABLE FOR SALE 2,158,992.00

LESS: Finished Goods Inventory, Dec. 31 (352,368.00)

LESS: COST OF GOODS SOLD (1,806,624.00)

Gross Margin 686,976.00

Less: Selling & Administrative Expense (522,000.00)

Operating Profit 164,976.00

Interest Expense (38,400.00)

Income before Income Taxes 126,576.00

Provision for Income Tax (58,000.00) NET INCOME 68,576.00$

Browning Manufacturing CompanyProjected Income Statement

For the Period Ending December 31, 1988(Schedule 1)

COST OF SALES AND INVENTORIESGROUP1: JENICE JOY SUMAWAY and MIKE AGENCIA

BM 220 --- PROF. TRINIDAD

Less: Sales returns and allowances 19,200.00

Sales discounts allowed 49,200.00 68,400.00

Net Sales 2,425,200.00

Less: Cost of goods sold (per schedule) 1,806,624.00

Gross Margin 618,576.00

Less: Selling and administrative expense 522,000.00

Operating Income 96,576.00

Less: Interest Expense 38,400.00

Income before federal and state income tax 58,176.00

Less: Estimated income tax expense 58,000.00

Net Income 176.00

COST OF SALES AND INVENTORIESGROUP1: JENICE JOY SUMAWAY and MIKE AGENCIA

BM 220 --- PROF. TRINIDAD

Browning Manufacturing Company

Case Analysis

2. Exhibit 1 - Projected Balance Sheet, December 31, 1997 vs December 31, 1998

1997 1998 INC/DEC

Assets

Cash & marketable securities 118,440$ 495,480$ 318%

Account receivable 311,760$ 201,360$ 55%

Inventories:

Materials 110,520$ 124,520$ 13%

Work in process 172,200$ 210,448$ 22%

Finished goods 257,040$ 352,368$ 37%

Supplies 17,280$ 22,080$ 28%

Prepaid taxes and insurance 66,720$ 91,920$ 38%

1997 1998 POS/NEG

Liabilities

Account Payable 185,760$ 288,360$ 55%

Notes Payable 288,840$ 552,840$ 91%

Income Taxes Payable 9,000$ 58,000$ 544%

Shareholders' equity 2,341,560$ 2,374,136$ 1%

Capital Stock 1,512,000$ 1,512,000$ 0%

Retained earnings 829,560$ 862,136$ 4%

2. Exhibit 2 - Statement of Cost of Goods Sold, Projected 1997 vs Projected 1998

1997 1998 % INC/DEC

Finished goods inventory 257,040$ 352,368$ 37%

Work in process inventory 172,200$ 210,448$ 22%

Materials used 663,120$ 811,000$ 22%

Direct Manufacturing Labor 419,040$ 492,000$ 17%

Factory Overhead

Indirect manufacturing labor 170,640$ 198,000$ 16%

Power, heat and light 116,760$ 135,600$ 16%

Depreciation of plant 126,600$ 140,400$ 11%

Social Security Taxes 42,120$ 49,200$ 17%

Taxes and insurance, factory 46,320$ 52,800$ 14%

Supplies 56,880$ 61,200$ 8%

Cost of Goods Sold 1,568,280$ 1,806,624$ 15%

2. Exhibit 3 - Projected Income Statement, Projected 1997 vs Projected 1998

1997 1998 % POS/NEG

Sales 2,295,600$ 2,562,000$ 12%

Sales returns and allowances 17,640$ 19,200$ -8%

Sales discounts allowed 43,920$ 49,200$ -11%

Net sales 2,234,040$ 2,493,600$ 12%

Cost of Goods Sold 1,568,280$ 1,806,624$ 15%

Gross Margin 665,760$ 686,976$ 3%

Selling and administrative expenses 437,160$ 522,000$ -16%

Operating income 228,600$ 164,976$ -28%

Interest expense 34,080$ 38,400$ -11%

Income before federal and state income tax 194,520$ 126,576$ -35%

Estimated income tax expense 89,520$ 58,000$ 54%

Net Income 105,000$ 68,576$ -35%

COST OF SALES AND INVENTORIES GROUP1: JENICE JOY SUMAWAY and MIKE AGENCIA

BM 220 --- PROF. TRINIDAD

Days receiveable in 1998 improved from 49 days to 29 days

3. The budget indicate that Browning Manufacturing Company fail to achieve its goal of at least

$350,000 repayment for notes payable and have a year-end cash balance of $150,000.

The budget shows that after repaying $350,000, year-end cash balance will fall at $145,840, short of $4,160.

To be able to achieve this goal, Browning Manufacturing company must work more in their collection,

convert at least 3%-5% ($6,000 - $10,068)of accounts receivables to cash. Doing this, year-end cash balance

will be at $151,480 - $155,548.

4. Inventory turnover ratio decrease from 2.8 to 2.5 or 146 days

Align production based on the avergae cost of good sales.

5. Accounts payable increased by 55% which is negative impact to suppliers.

Increasing Brownings the hanging balance in suppliers, less credit limit, which is risky on the supplier part.

COST OF SALES AND INVENTORIES GROUP1: JENICE JOY SUMAWAY and MIKE AGENCIA

BM 220 --- PROF. TRINIDAD