Case Study
Case Study 1
Treat each part of this question independently from all other parts.
a) Percentage summary income statements for the business of Allman Brothers for the years 2013 and 2014 are as follows:
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2013
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2014
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|
sales
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100%
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100%
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|
Less Cost of Goods Sold
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45%
|
65%
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|
Gross Profit
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55%
|
35%
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Give reasons that may explain the gross profit variations as disclosed by the above percentage analysis.( Max. words 300)
b) The following ratio calculations were made for the Allman Brothers for 2013 and 2014:
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2013
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2014
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Current Ratio
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3.0:1
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3.0:1
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Liquid Ratio
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1.2:1
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0.8:1
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Give reasoned opinion on the composition of the current and liquid assets and the short term liquidity situation as disclosed by the above ratios. (Note: the firm does not have a bank overdraft) ( Max. words 300)
c) The sale for the MTV company during 2014 totalled $307,500 of which $62,750 represented cash sales
Accounts receivable at the end of the year amounted to $67,751. Assuming a 250 day trading year and an industry average accounts receivable collection period of 30 days, comment on the firm's credit management policy. (Support your answers with appropriate calculations)( Max. words 300)