Assignment:
I need help with this problem so can you please show me how to do it?Is there any formulas that I need to use and what are they? So here is the question to the problem if inventories are expected to turn over ten times a year(based on cost of goods sold) what will be the venture's average inventories balance next year if sales are$1.2 million? How much might the venture be able to borrow if a lender typically lends an amount equal to 50 percent of the average inventories balance and if the borrowing rate is 12 percent how much dollar amount of interest would have to be paid on the loan?
Problem:
Brandie's Cook founded Brandie's Micro-Batch Frozen Yogurt Company, which was based on the idea of applying the microbrew beer strategy to the production and sale of frozen yogurt. Brandie began producing small quantities of unique flavors and blends in limited editions. Revenues were $600,000 last year (2004) and were estimated at $1.2 million for next year (2005).
Since Brandie was selling premium frozen yogurt containing premium ingredients, each small cup of yogurt sold for $3. The cost of producing the frozen yogurt averaged $1.50 per cup. Administrative expenses, including Brandie's salary and expenses for an accountant and two other administrative staff, were estimated at $180,000 for next year. Marketing expenses, largely in the form of behind-the-counter workers, in store posters, and advertising in local newpapers, were projected to be $200,000 next year.
An investment in bricks and mortar was necessary to make and sell the yogurt. Initial specialty equipment and the renovation of an old warehouse building in lower downtown (known as LoDo) of $600,000 occurred at the beginning of last year. An additional equipment investment of $200,000 was estimated to be needed to make the amount of yogurt forecasted to be sold next year. As a result, depreciation expenses were expected to be $100,000 next year. The Tax rate was expected to be 25 percent of taxable income.