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    Case Analysis - WCM

    Uploaded by

    Jubert Ng
    The case analysis evaluates Krug Gold Coin's proposal to shorten its credit period from 30 to 20 days, finding it would decrease sales by 25,000 units and increase fixed costs, resulting in an overall $43,533 loss. It also recommends Landrum Distributing deposit checks on different days corresponding to suppliers' check clearing times to improve cash flow. Finally, it identifies items 3, 5, and 9 as the highest-value items for Sansatrip Products' ABC inventory system.

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    Case Analysis - WCM

    Uploaded by

    Jubert Ng
    217 views6 pages
    The case analysis evaluates Krug Gold Coin's proposal to shorten its credit period from 30 to 20 days, finding it would decrease sales by 25,000 units and increase fixed costs, resulting in an overall $43,533 loss. It also recommends Landrum Distributing deposit checks on different days corresponding to suppliers' check clearing times to improve cash flow. Finally, it identifies items 3, 5, and 9 as the highest-value items for Sansatrip Products' ABC inventory system.

    Original Description:

    Case analysis related to working capital management

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    The case analysis evaluates Krug Gold Coin's proposal to shorten its credit period from 30 to 20 days, finding it would decrease sales by 25,000 units and increase fixed costs, resulting in an overall $43,533 loss. It also recommends Landrum Distributing deposit checks on different days corresponding to suppliers' check clearing times to improve cash flow. Finally, it identifies items 3, 5, and 9 as the highest-value items for Sansatrip Products' ABC inventory system.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    217 views6 pages

    Case Analysis - WCM

    Uploaded by

    Jubert Ng
    The case analysis evaluates Krug Gold Coin's proposal to shorten its credit period from 30 to 20 days, finding it would decrease sales by 25,000 units and increase fixed costs, resulting in an overall $43,533 loss. It also recommends Landrum Distributing deposit checks on different days corresponding to suppliers' check clearing times to improve cash flow. Finally, it identifies items 3, 5, and 9 as the highest-value items for Sansatrip Products' ABC inventory system.

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    Problem 1: Krug Gold Coin, Inc.

    is considering shortening its credit period


    from 30 days to 20 days and believes, as a result of this change, its
    average collection period will decrease from 36 days to 30 days.
    Bad debt expenses are also expected to decrease from 1.2 percent
    to 0.8 percent of sales. The firm is currently selling 300,000 units
    but believes as a result of the change, sales will decline to 275,000
    units. On 300,000 units, sales revenue is $4,200,000, variable costs
    total $3,300,000, and fixed costs are $300,000. The firm has a
    required return on similar-risk investments of 15 percent. Evaluate
    this proposed change and make a recommendation to the firm.
    Answer: Therefore, Krug Gold Coin, Inc. should not implement its proposal of
    shortening its credit period from 30 days to 20 days since it would create a
    loss of $43,533.

    SALES ($14/unit)
    VARIABLE
    COST
    ($11/unit)
    FIXED COST
    BAD
    DEBTS
    EXPENSE
    (1.2% and 0.8% of
    Sales)
    OPPORTUNITY COST

    OLD POLICY
    $4,200,000
    3,300,000

    NEW POLICY
    $3,850,000
    3,025,000

    VARIANCE
    $350,000 UF
    275,000 F

    300,000
    50,400

    300,000
    30,800

    19,600 F

    (4,200,000 x
    1.2%)

    (3,850,000 x 0.8%)

    49,500*

    37,813**

    * COMPUTATION
    360
    =10
    36
    3,300,000
    =330,000
    10
    330,000 X 15% = 49,500

    11,867 F
    $43,533 UF

    ** COMPUTATION
    360
    =12
    30
    3,025 ,000
    =252,083
    12
    252,083 X 15% = 37,813

    Problem 2: Landrum Distributing, Inc. has completed an analysis of checkclearing times of five key suppliers. On a weekly basis, the firm has
    a $50,000 check disbursed to each of these suppliers, totaling
    $250,000. In examining the check-clearing times of each supplier,
    the firm revealed:
    Number of Business
    Days
    for Check to Clear
    3
    5
    6
    7
    8

    Supplier
    1
    2
    3
    4
    5

    Given this information, what recommendation would you give the


    firm with respect to paying its suppliers weekly? Explain.
    Answer:
    Deposit $50,000 on
    :
    Supplier 1
    $50,000 on
    Supplier 2
    $50,000 on
    Supplier 3
    $50,000 on
    Supplier 4
    $50,000 on
    Supplier 5

    day 3 to for
    day 5 to for
    day 6 to for
    day 7 to for
    day 8 to for

    The financial manager should monitor clearings by calling the bank at the
    start of the business day in order for the financial manager to estimate the
    duration on the processing of the check and also to estimate when it will be
    paid to the supplier that should be within the credit terms.

    Problem 3: Sansatrip Products has ten different items in its finished goods
    inventory. The average number of units held in inventory and the
    average unit cost are listed for each item. The firm uses an ABC
    system of inventory control.
    Ite
    m
    1
    2
    3
    4
    5
    6
    7
    8
    9
    10

    Average
    Number
    of Units in
    Inventory
    3,000
    500
    4,000
    50
    10,000
    340
    1,500
    460
    2,500
    390

    Average
    Cost
    Per Unit
    $1.50
    10.00
    12.00
    40.00
    5.00
    15.00
    3.00
    30.00
    25.00
    4.10

    a) Which items should be considered to be in the A category of an


    ABC system of inventory?
    b) Which items should be considered to be in the B category of an
    ABC system of inventory?

    Answers:
    Ite
    m
    1
    2
    3
    4
    5
    6
    7
    8
    9
    10

    Average
    Number
    of Units in
    Inventory
    3,000
    500
    4,000
    50
    10,000
    340
    1,500
    460
    2,500
    390
    Total

    Average
    Cost
    Per Unit
    $1.50
    10.00
    12.00
    40.00
    5.00
    15.00
    3.00
    30.00
    25.00
    4.10

    Average
    Investment
    $ 4,500
    5,000
    48,000
    2,000
    50,000
    5,100
    4,500
    13,800
    62,500
    1,599
    $196,999

    a. Items that should be in Category A under ABC System of inventory


    management are: Item 3, Item 5, and Item 9.
    b. Items that should be in Category B under ABC System of inventory
    management are: Item 1, Item 2, Item 4, Item 6, Item 7, and Item 8.

    MANACO:
    CASE
    ANALYSIS
    #4
    Submitted By:
    Group 2
    Members:
    Go, Joebert A
    Ritaga, Roy G.
    Malaki, Katty May D.
    Babalcon, Loubelle Anne G.
    Amistoso, Tonette C.
    Ecito, Athena Aura V.

    Mendoza, Ma. Almera M.


    MANACO 2 (11:00-12:00/11:30-1:00) M-F

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