ACCT 2001 Lecture Notes - Lecture 13: Uptodate, Barcode, Income Statement

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ACCT 2001 Lecture Notes - Lecture 12: Bank Reconciliation, Bank Statement, Professional Wrestling Holds

ACCT 2001 Lecture Notes - Lecture 13: Uptodate, Barcode, Income Statement

ACCT 2001 Lecture Notes - Lecture 14: Gross Profit, Income Statement

Document Summary

Chapter 6: merchandising operations and the multistep income statement. Successful people are not gifted; they just work hard, then succeed on purpose. Learning objective 6-1: distinguish between service and merchandising operations. For any company to be successful, it must complete its operating cycle efficiently. The operating cycle is a series of activities that a company undertakes to generate revenues and, ultimately, cash. Service companies follow a simple operating cycle: sell services to customers, collect cash from them, and use that money to pay for operating expenses. Merchandising companies differ in that their cycle begins with buying products. These products, which are called inventory, are sold to customers, which leads to collecting cash that can be used to pay operating expenses and buy more inventory. Three accounts are particularly important to a merchandiser: inventory, Inventory reports the merchandiser"s total cost of acquiring goods that it has not yet sold.

Related Questions

Question 1

Identify the item below that is not one of the four different types of data processing activities.

		deleting
		reading
		creating
		using

Question 2

All of the following are advantages of an ERP system except

		ERPs permit manufacturing plants to receive new orders in real time.
		in an ERP, data input is captured or keyed once.
		it takes considerable experience and training to use an ERP system effectively.
		ERPs permit management to gain greater visibility into every area of the enterprise.

Question 3

Sam Jones has been the controller of Downtown Tires for 25 years. Ownership of the firm recently changed hands and the new owners are conducting an audit of the financial records. The audit has been unable to reproduce financial reports that were prepared by Sam. While there is no evidence of wrongdoing, the auditors are concerned that the discrepancies might contribute to poor decisions. Which of the following characteristics of useful information is absent in the situation described above?

		relevant
		reliable
		complete
		timely
		understandable
		verifiable
		accessible

Question 4

An ERP system might facilitate the purchase of direct materials by all of the following except

		preparing a purchase order when inventory falls to reorder point.
		routing a purchase order to a purchasing agent for approval.
		communicating a purchase order to a supplier.
		selecting the best supplier by comparing bids.

Question 5

Antia Carmie is the largest collector and retailer of Japanese fans in the St. Louis area. Antia uses computer technology to provide superior customer service. The store's database system was designed to make detailed information about each Japanese fan easily accessible to her customers. Accordingly, the fan price and condition are provided for each fan, along with many pictures of each fan. In Antia's database, the price of the Japanese fans is a(n)

		entity.
		attribute.
		field.
		record.

Question 6

Which of the following is not considered a source document?

		A copy of the company's shipping document.
		A copy of the company's ledger.
		A copy of the company's sales journal.
		A copy of the company's financial statements.

Question 7

In an ERP system, the module used to record data about transactions in the disbursement cycle is called

		financial.
		order to cash.
		customer relationship management.
		purchase to pay.

Question 8

Baggins Incorporated identifies new product development and product improvement as the top corporate goals. An employee developed an innovation that will correct a shortcoming in one of the company's products. Although Baggins current Return on Investment (ROI) is 12%, the product innovation is expected to generate ROI of only 10%. As a result, awarding bonuses to employees based on ROI resulted in

		goal conflict.
		information overload.
		decreased value of information.
		goal congruence.

Question 9

________ are examples of activities that constitute inbound logistics.

		Activities that transform inputs into final products or services
		Activities that provide post-sale support to customers
		Activities that consist of receiving, storing, and distributing the materials used as inputs by the organization to create goods and/or services it sells
		Activities that help customers to buy the organization's products or services

Question 10

In which transaction cycle would information for inventory purchases be most likely to pass between internal and external accounting information systems?

		the revenue cycle
		the expenditure cycle
		the human resources / payroll cycle
		the financing cycle

Question 11

The collection of customer payment is part of which transaction cycle?

		the human resources cycle
		the production cycle
		the revenue cycle
		the expenditure cycle

Question 12

Which of the following is an example of source data automation?

		POS (point-of-sale) scanners in retail stores
		a bill of lading
		a subsidiary ledger
		a utility bill

Question 13

All of the following are guidelines for developing a good coding system except

		be as sophisticated as possible to promote usage.
		be consistent with its intended use.
		be flexible to allow for growth.
		be consistent with the company's organization structure.

Question 14

What is a key decision that needs to be made with regards to borrowing money from lenders?

		the location
		pro forma income statement
		how much capital to acquire
		job descriptions

Question 15

Identify the false statement below.

		A service company does not have an inventory system.
		Retail stores do not have a production cycle.
		Financial institutions have installment-loan cycles.
		Every organization should implement every transaction cycle module.

Question 16

The chart of accounts of a fast-food restaurant would probably include

		a list of customers.
		a list of financial statement accounts.
		a list of vendors.
		a list of employees.

Question 17

Which statement below regarding the AIS is false?

		Traditionally, most AIS have been designed so that both financial and operational data are stored in a manner that facilitates their integration in reports.
		The AIS must be able to provide managers with detailed and operational information about the organization's performance.
		Both traditional financial measures and operational data are required for proper and complete evaluation of performance.
		The AIS was often just one of the information systems used by an organization to collect and process financial and nonfinancial data.

Question 18

In Petaluma, California, electric power is provided to consumers by Pacific Power. Each month Pacific Power mails bills to 186,000 households and then processes payments as they are received. What is the best way for this business to ensure that payment data entry is efficient and accurate?

		well-designed paper forms
		turnaround documents
		source data automation
		sequentially numbered bills

Question 19

Data must be converted into information to be considered useful and meaningful for decision making. There are seven characteristics that make information both useful and meaningful. If the same information can be reproduced by two independent and knowledgeable people, it is representative of the characteristic of

		verifiability.
		truthful.
		relevance.
		reliability.

Question 20

		entity.
		attribute.
		field.
		record.

lilaccod491

"Case Study
Adobe Trading Company, Santa Fe, New Mexico

Summer is approaching and Robert and Julia Martinez-Fonts havefinally decided that their idea of a successful southwestfurniture, art, and jewelry trading company has come of age. Theyknow that summer is a popular tourist time in New Mexico and couldbe the best time to start this new business. The Martinez-Fontshave had a longtime interest in southwestern art and furniture.Robert graduated from Florida International University with afinance degree 15 years ago and received his MBA three years laterfrom Texas A & M University. He has been working in Dallas,Texas, as the controller of a major wholesale distributor companyfor many years. His wife, Julia, who is a full partner in thebusiness, spent the first 10 years of her career in retail sales.Over the last several years she has assumed more administrativeduties with the group she works with.

Robert and Julia know that together they bring the necessaryexpertise and skill to run a successful business, but to ensuresuccess they have been researching the market for over five years.They also know that they must be very careful and thoroughlyresearch the business and industry they are pursuing. They havetraveled extensively to New Mexico and spent a good deal of timegetting to know the local artists (primarily ski âbumsâ). Theybelieve that there is a great demand for southwestern furniturethrough the Southwest and prices are currently high.

They have informal commitments from local craftsmen to supply themwith goods that they will display and sell. They have also madetentative arrangements with a large and reliable firm to supply thefurniture and art pieces they will need to run the business.

The Martinez-Fonts have decided to open a shop in Santa Fe, NewMexico, under the name Adobe Trading Company, operating as both asupplier to furniture and art outlets and seller in the retailshop. Robertâs extensive contacts with suppliers in Dallas andHouston have given him the orders needed to get the business offthe ground as soon as they begin shipping the goods. Julia hasalready begun marketing the southwestern products. The arrangementswith the local craftsmen will allow very aggressive pricing of thegoods to retail establishments in the Southwest. This aggressivepricing has been well received and tentative orders are already inplace.

Robert has found an ideal location for the shop that is currentlyavailable. The owner is asking $275,000 for the space but AdobeTrading has a contract contingent on financing for $250,000. Basedon remodeling bids, Robert and Julia estimate that they will beable to fix up the place for about $45,000. Although they willpurchase the building, the land is leased on a transferable leasewith 65 years remaining. The Martinez-Fonts have decided to invest$235,000, which represents most of their savings, into the ventureto ensure success. Juliaâs sister is also lending Adobe TradingCompany $90,000. Repayment on the note is not expected to begin forfive years. The Martinez-Fonts estimate that they will need$130,000 in inventory to start the business
and will pay for the inventory in cash to build goodwill with thelocal craftsmen. They also estimate that they will need a minimumcash balance of $20,000 to conduct day-to-day operations and paybills. Finally they believe that all renovations to the buildingand inventory can be in place by June 30, 2011.

Robertâs approached Nancy Teachout the senior loan officer at Firstof Dallas Bank in Santa Fe, New Mexico, for financing. Hisbackground in finance allowed him to put together Adobeâspreliminary business plan using the
below assumptions:

1. Sales are expected to be a bit lower through 2011 becauseAdobeâs newness and it takes time for any firm to establish amarket presence. Sales are expected to grow significantly 1n 2012and 2013 with lower growth in 2014. Sales are expected to be$275,000 in the final six months of 2011, and $675,000, $800,000,and $900,000 during the three full years of operation (2012, 2013and 2014). Sales are expected to level off at $900,000 after2014.

2. Based on tentative agreements and orders, it is expected thatcost of goods sold will average 63% of sales.

3. General and administrative expenses are expected to be $70,000for the six months in 2011, increase to $100,000 in 2012 and leveloff at $120,000 from 2013 on. The land lease expenses and interestexpenses are included in operational expenses.

4. Selling expenses are expected to be 12% of sales and Julia isexpecting to undertake extensive marketing and promotion effortsthough the Southwest immediately after the business is opened.These additional promotional expenses will be $30,000 in 2011only.

5. Adobe will use a 10-year straight-line depreciation of thebuilding and improvements.

6. Adobeâs effective tax rate is expected to be 34%.

7. A relative large portion of business is expected to be on creditso that Adobe will carry about 48 days of accounts receivable.Based on the type of business that they are entering, Robert andJulia expect to turn their inventory three times a year.

8. Based on the negotiations they have had with their craftsmen,suppliers, and other wholesale distributors, they estimate thatthey can count on about 28 days of accounts payable to help financethe business.

In preparing to go to the bank for the necessary loan, theMartinez-Fonts want to prepare projected financial statements forAdobe Trading Company showing the company can make a profit and payback the loan. They also want to know more precisely how much theywill need to borrow from the bank to open the doors for businessand help finance the initial years of the
business. The Martinez-Fonts plan to prepare five years of balancesheet, income statement, and cash budget data for the bank. Theyalso must develop an opening balance sheet as of the date they planto open the doors, June 30, 2011. These pro forma financialstatements will aid them and the bank officer in answering manyquestions including:

1. How much financing will be needed to open the doors of thebusiness in July of 2011?

2. Five years of pro forma balance sheet and income statement datamust be prepared to determine if additional financing is needed. Ifso, how much? Robertâs finance background tells him that theestimated financing needed each year will be an accounting plugfigure to ensure that the balance sheet balances. If projectedassets exceed liabilities and equity, the difference will be thebank borrowing needs. If liabilities and equity exceeds projectedassets purchases, these funds will be used to pay off debt orincrease cash or marketable securities.

3. Because this is a start-up business, it is important to identifywhat the loan proceeds will be used for, what the primary source ofrepayment is, and when to estimate total loan proceeds will berepaid. Using the pro forma projections, the primary source ofrepayment and when the loan will be repaid.

4. A cash budget or cash based income statement for each year needsto be prepared because Robert knows that the only thing thatmatters to the bank is cash.

5. Robert needs to prepare a collateral schedule. He knows that thebanker does not want the collateral but will need all he can get ifthe business is not as successful as expected.

On behalf of Robert Martinez-Fonts students are required toprepare:
â¢ A pro forma balance sheet and income statements (five years) todetermine the initial and additional financing if any.
â¢ A cash budget or cash based income statement for every year
â¢ A pro forma collateral schedule

In the role of Nancy Teachout students are required to analyzeAdobe Trading Companyâs pro forma statements and answer thefollowing questions:

What is your recommendation concerning the loan request?Would you make or deny the loan? State your reasons.

violetlouse821

INVENTORY MANAGEMENT FOR PHARMACEUTICAL INDUSTRY
Brazilâs pharmaceutical market, the second largest in the emerging world, is growing at a 28 percent compounded annual rate. In 2010, the value of the prescription drugs sold to Brazilâs middle class was $8 billion, mostly for unpatented medications. According to McKinsey report1, the middle class prefers to rely on public health services, whose physicians prescribe only generic drugs. Moreover, it reported that cost-conscious middle-class patients ask pharmacists to switch their medications to less expensive generics even when physicians prescribe branded drugs.

As a result, global pharmaceutical companies have concluded that they must focus on low-cost strategy for generics and branded generics. Nine of the largest local pharmaceutical films in Brazil (Ache, Biolab, Cristalia, Libbs, EMS, BioNovis, Hebron, Eurofarma and Orygen) have invested BRL538 million (USD174.3 million) during the first five months of 2015, focusing mainly on the production of biosimilars and generics2.

1 2
http://www.mckinsey.com/insights/health_systems_and_services/capturing_the_brazilian_pharma_opportunity https://www.ihs.com/country-industry-forecasting.html?ID=1065999088

Campinas is a city in State of Sao Paulo, Brazil. To the north are a series of coastal towns that are growing very quickly. In 1998, PharmaDist Co.-a pharmaceutical wholesaler serving nine largest local pharmaceutical producers) opened a distribution center in Campinas to supply pharmaceuticals and related products to retail pharmacies, hospitals, dispensing doctors and a few other outlets. In the past, deliveries of pharmaceuticals in this remote area had been made directly by manufacturers, but the growing population had encouraged wholesalers to open. Now there is a mature industry giving an efficient delivery service from centralized warehouses.
As more pharmaceutical wholesalers arrived the market has become increasingly competitive. PharmaDist is one of the main wholesaler companies in the area. It is now classified as a medium-sized private company which is run efficiently and gives a good service to customers. The three main activities of PharmaDist are:
â order taking and processing
â stock holding and control
â delivery to customers.

1 2
http://www.mckinsey.com/insights/health_systems_and_services/capturing_the_brazilian_pharma_opportunity https://www.ihs.com/country-industry-forecasting.html?ID=1065999088

To ensure his companyâs continuing success, Orlando Marcelo, the CEO is always looking for improved performance. A short while ago he was concerned that the cost of deliveries to customers was rising. The distribution system had been reviewed occasionally as the company grew, but it was essentially designed for a much smaller operation.
Orlando hired a management consultant to give advice on improving the transport operations. The consultant did some work which suggested areas for improvement, and his final report suggested that the company look at its stock holding policies. Orlando looked at the stock control system, which was based on standard software provided by SOFT seven years earlier. This had been updated and expanded twice, and still seemed to work quite well. Unfortunately, a close examination showed that stock levels had actually been drifting upwards for some time. The purchasing department explained that the company was successful because it had a reputation for reliability and service. A customer could e-mail, fax or telephone an order and delivery would be guaranteed during the next working day. Unfortunately PharmaDist had occasionally run out of stock and had let down customers (their own lead time from manufacturers averaged about a week). To ensure 97% service level, the purchasing department had adopted a policy of keeping two weeksâ demand in reserve stock, but for some reason this seemed to be drifting up to three weeksâ demand. The same ordering procedure was used for all items. This was based on the purchasing departmentâs view that the most important factor was average demand over the past five weeks. This value was used as a forecast of future demand. Then a reorder level was set as:
Reorder level = Forecast Ã (lead time + safety stock) Ã Factor
where Factor is a variable between 1 and 2 to give a subjective view of the itemâs importance and the supplierâs reliability. Order quantities are really set by the number of staff in the purchasing department. Three people work in the department, each processing up to sixty orders a day. In 200 working days a year they can process 36,000 orders. As there were 4000 items in stock, each item can have an average of 9 orders a year. To add another element of safety, each order was made big enough to last about eight weeks. The system was largely automated, and nobody really checked its performance. Items were usually in stock when they were needed, so managers did not look at the details of the operations. Unit costs varied between one dollar and several hundred dollars, and no one had calculated cost of stock holding or ordering.

Demand for Item Week 1 2 3 4 5 6 7 8 9 1 53 284 252 27 145 1235 567 121 987 2 64 301 260 32 208 1098 664 87 777 3 82 251 189 23 177 987 548 223 743 4 41 333 221 22 195 1154 602 304 680 5 73 276 232 27 211 1559 530 76 634 6 18 259 195 30 179 1209 650 377 655 7 40 242 217 31 205 993 612 156 598 8 53 310 225 23 187 1313 608 198 603 9 52 311 186 28 156 1405 596 94 621 10 21 336 265 23 182 1009 637 355 564 11 67 258 245 25 171 985 555 187 559 12 50 277 212 28 169 1237 589 209 519 13 22 263 224 31 210 1119 601 304 485 14 37 277 233 28 182 1124 584 295 483 15 36 275 235 28 182 1117 580 315 463 16 34 273 236 29 182 1110 576 335 442 17 32 271 238 29 181 1103 572 354 422 18 31 269 240 29 181 1096 568 374 402 19 29 267 242 29 181 1089 564 394 381 20 22 272 243 30 184 1105 568 430 359 Mean 43 280 230 28 183 1152 588 259 569 Standard Deviation 18 25 22 3 17 144 34 112 154 Reorder level 302 1220 1050 160 1120 6100 2520 900 4400 Order quantity 450 2000 1500 245 1450 7900 4500 1950 6400 Unit cost (USD) 45.25 10.2 8.75 32.6 12.25 6.5 28.5 36 4.2

1. How well do you think the existing inventory control system works? What are the current annual total costs for the selected items?
2. What policy would you suggest to reduce the total costs? What is the anticipated gain?
3. Orlando Marcelo is keen to make progress in this area. What would you advise him to improve their inventory management system?

lavendermarten37

ACCT 2001 Lecture Notes - Lecture 13: Uptodate, Barcode, Income Statement

ACCT 2001 Lecture Notes - Lecture 12: Bank Reconciliation, Bank Statement, Professional Wrestling Holds

ACCT 2001 Lecture Notes - Lecture 13: Uptodate, Barcode, Income Statement

ACCT 2001 Lecture Notes - Lecture 14: Gross Profit, Income Statement

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