Financial Analysis Report: Smart Computer Case or Group Task 2

Financial Analysis Report: Smart Computer Case or Group Task 2

Question

Procedure:

Two optional cases are available to handle this separate task. Case Option 1 is developed based on the financial results prepared in Group Assignment 2. Case Option 2 is a hypothetical case – a smart computer. Only one of them should be worked on in this task.

Each case option has different requirements. However, the overall structure of this task is the same. Therefore, the evaluation weights and grades are the same for both options. Both options require completion of the Financial Analysis Report, Budget and Variance Analysis, and CVP Analysis.

In general, we recommend going with case option 1. Selection of case option 2 requires instructor approval. You can discuss your selections with your instructor no later than 5:30 PM on Thursday, February 21, 2019.

Take the income statement and balance sheet you created in the second group exercise. Based on the company’s cost estimates, she will prepare both financial statements for the next two months. Pro forma financial reports eliminate the need to re-enter date adjustments for transactions, balances, and balance sheets. However, the amounts in the pro forma financial statements should be logical. Your account must be balanced. Justify the estimated figures if necessary. You can compare and view financial reports for three consecutive months (accounting format for “smart computers” below). Additional grades are considered to produce the required financial statements.

The following financial reports relate to Smart Computers, a sole proprietor for the years ended March 31, 2017, 2018 and 2019. Smart Computers sells Dell computers in the Mount Wellington area of ​​Auckland.

STATEMENT OF COMPREHENSIVE INCOME
201720182019
$$$$$$
Sales (all on credit)1,000,0001,500,0002,400,000
Cost of Sales399,750574,000774,000
Gross Profit600,250926,0001,626,000
Selling Expenses
Advertising50,000100,000194,000
Sales Bonuses & Delivery35,00085,00056,000156,00084,000278,000
Admin. Expenses
Insurance40,00040,00040,000
Wages & Other455,000495,000466,950506,950470,750510,750
Financial Expenses
Bad Debts15,00048,000144,000
Interest35,25050,25055,050103,05080,250224,250
Net Profit-30,000160,000613,000
STATEMENT OF FINANCIAL POSITION
201720182019
$$$$$$
Current Assets
Cash – Bank25,000
Accounts Receivable140,000250,000550,000
Inventory60,000225,000101,000351,000188,000738,000
Fixed Assets
Land300,000300,000300,000
Buildings1,500,0001,500,0001,500,000
less Accum Depreciation-60,0001,740,000-90,0001,710,000-120,0001,680,000
Total Assets1,965,0002,061,0002,418,000
Current Liabilities
Bank Overdraft40,000125,000
Accounts Payable80,00080,000192,000232,000466,000591,000
Term Liabilities
Mortgage300,000300,000300,000
Bank Loan25,000325,000125,000425,000275,000575,000
Total Liabilities405,000657,0001,166,000
Owner’s Equity
Capital, start1,795,0001,525,0001,404,000
Net Profit-30,000160,000613,000
Drawings-205,000-281,000-765,000
Capital, end1,560,0001,404,0001,252,000
Total OE and Liabilities1,965,0002,061,0002,418,000

Additional information:

2016 Accounts receivable were 210,000

2016 Inventory were 35,000 The bank overdraft limit is $150,000.

The mortgage is due for repayment in 2020.

The industrial average ratios for similar businesses for the year ended 31 Mar 2019 are listed as follows.

Industrial average ratios for the year ended 2019
GP %64.00%
NP %21.68%
Return on equity %39.98%
Current ratio1.90 : 1
Liquidity ratio1.15 : 1
Equity ratio %56.3%
Inventory turnover (times)8
Inventory turnover (days)45.63 days
Acc. rec. turnover (times)9
Acc. rec. turnover (days)40.55 days

Based on the information gathered above for each case, the following recommended reporting structure should be used to report to the selected case company manager or owner. The report assesses profitability, financial stability and asset utilization and suggests future improvements for the company.

The word limit for this report is 1,500 words (±10%). We recommend using the following structure for your report.

Using the financial income statement figures from the business’s second period, create a budget for the third period according to the estimated adjustments below.

Case Option OneCase Option Two
Sales increases by 30%
Cost of goods sold will be the same % of sales as in the second accounting period
Select a selling expense to remain a same % as it in the 2nd accounting period.Sales bonuses & Delivery will be the same % of sales as in 2018
Select a selling expense that increases by 2% of the budgeted sales in the 3rd accounting periodAdvertising will be 10% of the budgeted sales in 2019
Select a semi-variable cost (40% fixed, remainder varies in direct relation to sales)Wages & Other is a semi-variable cost (40% fixed, remainder varies in direct relation to sales)
  • Based on the two planned figures you created and the actual figure for the third period, calculate the deviation and variance against the budget in % for each profit and loss item. Present your work as a variation
  • Determine each variance as F (favorable) or U (unfavorable).
  • Evaluate the deviation report and briefly describe the two deviations you want to investigate first.
  • Justify your answer with at least one explanation

From the income statement of the 3rd plan

  • Classify all income statement expense items into variable, fixed, and semi-variable costs.
  • Calculate total fixed cost, total variable cost and variable unit price*.
  • Calculates the break-even point in units. Show me how you work. Rounds break-even figures to zero decimal places
  • Calculates the number of units a company has to sell if he wants to make a net profit of $500,000 in 2019.

Option 1 requires consultation with the instructor to set an appropriate budget for the unit sold. For Option 2, 2,000 units are expected to be sold in 2019.

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