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CASE ANAYLYSIS: BROWNING MANUFACTURING COMPANY

I. Background The management of Browning Manufacturing Company annually prepared a budget of expected financial operations for the ensuing calendar year. Provided is the Projected Balance Sheets, Income Statements & Statement of Cost of Goods Sold for 2009 and expected transactions for 2010 in order to prepare the 2010 budget.

II. Analysis A. ANALYZING FINANCIAL STATEMENTS FOR 2010 Below are the transaction report & trial balance of Browning Manufacturing Company for 2010 based on expected operations for the budget year 2010. From this, the task is to prepare a projected statement of cost of goods sold, projected income statement and projected balance sheet for 2010.

Browning Manufacturing Company Projected Balance Sheet For the Year Ended December 31, 2010 Current Assets Cash and Marketable Securities Accounts Receivable (net) Inventories Materials Work in Process Finished Goods Supplies Prepaid Taxes and Insurance Total Current Assets Manufacturing Plant Less Accumulated Depreciation 124,52 0 210,44 8 352,36 8 22,080 91,920 1,452,3 36 1,474,8 00 Current Liabilities 449,64 0 201,36 0 Accounts Payable Notes Payable Income Taxes Payable Total Current Liabilities Owners' Equity Capital Stock Retained Earnings Total Liabilities and Owners' Equity 2,522,4 00 1,512,0 00 868,13 6 2,927,1 36 288,36 0 252,84 0 5,800 547,00 0

Total Assets

Sales

1,047,6 00Company Browning Manufacturing Projected Income Statement 2,927,1 For the Year Ended December 31, 2010 36 19,200 49,200

2,562,000

Less: Sales Returns and Allowances Sales Discount Allowed Net Sales Less: Cost of Goods Sold (per sched.) Gross Margin Less: Selling and Administrative Expense Operating Income Less: Interest Expense Income Before Federal Income Tax Less: Estimated Income Tax Expense Net Income

-68,400 2,493,600 -1,806,624 686,976 -522,000 164,976 -38,400 126,576 -58,000 68,576

Browning Manufacturing Company Projected Statement of Cost of Goods Sold For the Year Ended December 31, 2010 257,04 0 172,20 0 110,5 20 825,0 00 935,5 20 124,5 20 811,00 0 492,00 0 198,0 00 135,6 00 140,4 00 49,20 0 52,80 0 61,20 0

Finished Goods Inventory, 01/01/10 Work in Process Inventory, 01/01/10 Materials Inventory, 01/01/10 Plus: Purchases

Less: Materials Inventory, 12/31/10 Materials Used Plus: Factory Expenses Direct Manufacturing Labor Factory Overhead Indirect Manufacturing Labor Power, Heat, and Light Depreciations of Plant Social Security Taxes Taxes and Insurance, Factory Supplies

Less: Work in Process Inventory, 12/31/10 Cost of Goods Manufactured

637,20 0 2,112,4 00 210,44 8 1,901,9 52 2,158,9 92 352,36 8 1,806,6 24

Less: Finished Goods Inventory, 12/31/10

Cost of Goods Sold

B. ANALYZING THROUGH PERFORMANCE INDICATORS/RATIOS From this, we also compare 2009 and 2010 through ratios. This will identify the principal differences between the 2010 estimates and 2009 figures. C. ANALYZINGNOTE PAYABLE REPAYMENT GOAL The management will not achieve its note repayment goal, this is because at the end of 2010 the cash and marketable securities will only be equal to 449,640. After paying off the minimum $350,000 of note payable to the bank the remaining balance will be $99,650 which is less than the $150,000 goal amount. As a solution the company may consider reducing its payable accounts, specifically its note payable account along with some of its expenses in order to increase cash and the net income. D. MANAGING INVENTORY TURNOVER GOAL The management inventory turnover goal will not be achieved. The inventory turnover for 2010 is lower than that of 2009. A low turnover implies poor sales and therefore there will be an excess in inventory. In order to achieve the company's inventory turnover goal, the company could consider bettering relationships with its suppliers and customers. A better and stronger relationship with suppliers will lead to timely delivery of materials. On the other hand, when you strengthen relationships with your customers, demand will be more predictable which in turn will lead to decrease in product inventory. E. MANAGING TRADE CREDIT STANDING The budget will indicate that the company may not be able to pay its obligation as they become due, which will lead to poor creditor relationship will in turn may affect the company's goodwill and productions and sales in the future.

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