DE Case Study 1.pdf X + X C File | C:/Users/brars/OneDrive/Desktop/Case%20Study%201.pdf . . . Be Import favorites M Gmail YouTube Maps | | V Draw ~ | Read aloud 1 of 8 O BUS 1185: Accounting for Non-Financial Managers + Organization Management Graduate Certificate BUS1185 - Case Study 1 (20%) Due Date: April 13th at 11:59PM The following case study is composed of 5 questions that will focus on topics covered in weeks 1-4 of class. Responses can be typed or handwritten, but keep in mind that the completed case study will need to be submitted through Moodle, so anything handwritten will need to be scanned and legible Unless you have otherwise confirmed with the professor, the case study must be completed on your own. You are not allowed to submit work completed by someone else, including other students, or by any online websites or resource. You are also not allowed to copy and paste answers from another individual or online resources. Any such instances will be considered as cheating and treated accordingly For the purposes of this case study, you will be reviewing financial information for Sounds Led., which manufactures and sells headphones. You will be providing information and feedback to Sounds Ltd., based on your knowledge of managerial accounting. Below they have provided you with a copy of their Income Statement and Balance Sheet for the prior year. Any additional information required will be included with individual prompts. Company Income Statement for the Year Ended December 31, 2022 (dollars in thousands) Sales (all on account) $1,800 Cost of goods sold 1,260 Gross margin 540 Operating expenses 210 Net operating income 330 Interest expense 50 Net income before taxes 280 Income taxes (30%) 84 Net income $196 Q Search 8 9 ENG 9:54 PM Cloudy N US 2023-04-13DE Case Study 1.pdf X + X C File | C:/Users/brars/OneDrive/Desktop/Case%20Study%201.pdf . . . Be Import favorites M Gmail YouTube Maps | | V Draw 2 T Read aloud + 2 of 8 BUS 1185: Accounting for O Non-Financial Managers + Organization Management Graduate Certificate Company Balance Sheet December 31, 2022 and 2021 (dollars in thousands 2022 2021 Current assets: Cash and marketable securities $210 $190 Accounts receivable, net 160 150 Inventory 190 180 Prepaid expenses 30 30 Total current asset 590 550 Noncurrent assets Plant & equipment, net 1,500 1,470 Total assets $2,090 $2,020 Current liabilities: Accounts payable $170 $190 Accrued liabilities 60 60 Notes payable, short term 80 120 Total current liabilities 310 370 Noncurrent liabilities: Bonds payable 460 500 Total liabilities 770 870 Shareholders' equity: Preferred shares, $5 par, 15% 100 100 Common shares, $5 par 160 160 Additional paid-in capital-common 110 110 shares Retained earnings |950 780 Total shareholders' equity 1,320 1,150 Total liabilities & shareholders' equity |$2,090 $2,020 Cloudy Q Search N ENG 9:55 PM US 2023-04-13DE Case Study 1.pdf X + X C File | C:/Users/brars/OneDrive/Desktop/Case%20Study%201.pdf . . . Be Import favorites M Gmail YouTube Maps | | V Draw 2 T Read aloud + 3 of 8 BUS 1185: O Accounting for Non-Financial Managers + Organization Management Graduate Certificate 1) Currently Sounds Ltd., runs on a more traditional business model, but you believe that a move to a lean business model could benefit Sounds Ltd. Explain the lean business model by listing the model's four practices (4 marks). Provide a definition (or give an example) for two of these practices (2 marks). In order to convince them to make the change identify two potential benefits of the lean business model (2 marks). (Question 1 - /8 marks) Cloudy Q Search L O C H B O d N ENG 9:55 PM US 2023-04-13DE Case Study 1.pdf X + X C File | C:/Users/brars/OneDrive/Desktop/Case%20Study%201.pdf . . . Be Import favorites M Gmail YouTube Maps | | V Draw 2 T Read aloud + 4 of 8 BUS 1185: Accounting for O Non-Financial Managers + Organization Management Graduate Certificate 2) Sounds Ltd. may be seeking to get a short-term loan in order to help subsidize purchasing additional assets in the coming year. To help assess where they would stand with a short-term lender calculate the following ratios (7 marks). a) Working Capita b) Current Ratio c) Acid Test (Quick) Ratio d) Accounts Receivable Turnover e) Inventory Turnover f) Average Collection Period g) Average Sale Period You know that the industry average for collection periods is 25 days, and that the industry average for sales period is 40 days. Based on this knowledge and the ratios you calculated, advise whether or not you believe a short-term lender would be likely to lend to Sounds Ltd. (3 marks) (Question 2 - /10 marks) 9:55 PM Cloudy Q Search N ENG US 2023-04-13DE Case Study 1.pdf X + X C File | C:/Users/brars/OneDrive/Desktop/Case%20Study%201.pdf . . . Be Import favorites M Gmail YouTube Maps | | V Draw ~ | Read aloud 5 of 8 O BUS 1185: Accounting for Non-Financial Managers + Organization Management Graduate Certificate 3) Sounds Ltd., asks you to write an equation that would allow them to estimate manufacturing overhead costs based on a given volume of headphones sold. They provide you with the below information on manufacturing overhead costs and units sold by month over the last year. Manufacturing overhead costs 2022 Month Units Sold Cost January 875 $45,685.42 February 723 $43,641.02 March 988 $47,205.27 April 992 $47,259.07 May 1024 $47,689.47 June 1103 $48,752.02 July 939 $46,546.27 August 809 $44,797.7 September 884 $45,806.47 October 817 $44,905.32 November 906 $46,102.37 December 1190 $49,922.17 Using the high-low method, write a mixed cost equation that they can use to predict manufacturing overhead costs based on units sold per year (3 marks) Use the equation to estimate the manufacturing overhead costs if they were to sell 15,000 products (1 mark). (Question 3 - /4 marks) Cloudy Q Search N ENG 9:55 PM US 2023-04-13DE Case Study 1.pdf X + X C File | C:/Users/brars/OneDrive/Desktop/Case%20Study%201.pdf . . . Be Import favorites M Gmail YouTube Maps | | V Draw 2 T Read aloud + 0 6 of 8 BUS 1185: O Accounting for Non-Financial Managers + Organization Management Graduate Certificate 4) Using the following information along with the previously provided financial statements, create a contribution margin income statement for Sounds Ltd. (4 marks). In addition, calculate the variable cost and contribution margin per unit (2 marks) and as percentages of total sales (2 marks). In 2022, the selling price for Sounds Ltd., headphones was $160. In terms of costs, they spent a total of $281,250 on variable conversion costs and spent $45 per product in direct materials to produce the headphones sold. Rent for the manufacturing facilities and equipment totaled $347,500, and the manufacturing supervisors received a total of $125,000 in salary. Rent for their corporate office came to $63,000 for the year, and they spent $102,000 on administrative salaries. Sales staff received $3.00 in commission for each unit sold, and an additional $1.00 of administrative cost per product was associated with mailing and hourly pay for office staff. Cloudy Q Search 8 9 0 N ENG 9:55 PM US 2023-04-13DE Case Study 1.pdf X + X C File | C:/Users/brars/OneDrive/Desktop/Case%20Study%201.pdf . . . Be Import favorites M Gmail YouTube Maps | | V Draw 2 T Read aloud 7 of 8 BUS 1185: O Accounting for Non-Financial Managers + Organization Management Graduate Certificate 5) The owner of Sounds Ltd. is concerned about volatility in the market and is predicting that sales will go down by 5% this year. He believes reducing their fixed expenses in favour of variable expenses will offset the decrease in sales Sounds Ltd. To do this he plans on reducing the number of high-cost assembly line machines they use, which the company rents on a monthly basis, and instead bring on more hourly workers to complete the work by hand. This will allow them to reduce their manufacturing expenses during times of slower demand. Doing this will increase variable expenses by a $4.00 per unit but will reduce fixed expenses by $75,000 Assuming the projected 5% decrease in sales that is anticipated, compute the following based on the existing cost structure you calculated in question 4, as well as based on the owner's proposed changes to the cost structure a) Contribution margin (2 marks) b) CM ratio (2 marks) c) Net operating income (2 marks) d) Degree of operating leverage (2 marks). Based on your calculated values, would you recommend Sounds Led. move ahead with the proposed changes to the cost structure? Why or why not? (2 marks) Q Search B O ENG 9:55 PM Cloudy N US 2023-04-13DE Case Study 1.pdf X + X C File | C:/Users/brars/OneDrive/Desktop/Case%20Study%201.pdf . . . Be Import favorites M Gmail YouTube Maps | | V Draw ~ | Read aloud 8 of 8 O BUS 1185: Accounting for Non-Financial Managers + Organization Management Graduate Certificate Question Mark 1 8 2 /10 3 / 4 4 15 10 Total 140 Cloudy Q Search B O N ENG ( O 9:55 PM US 2023-04-13