Financial Exercise $(20$ points$)$

ACME Power Tool Company financial statements:

INCOME STATEMENT ENDING BALANCE SHEET

$2020$ December $31,2020$

Sales $(12,000$ units@$$50/$unit$)$ $$600,000$ Assets Liabilities

raw materials $($$$30/$unit$)$ $$360,000$ Cash $$20,000$ Current Liabilities $$50,000$

labor $($$$3/$unit$)$ $$36,000$ Accounts Receivable $$30,000$ Long Term Debt $$50,000$

scrap $($$$0\mathrm{.}33$ per unit$)$ $$4,000$ Inventory $$100,000$ Total Liabilities $$100,000$

COGS $($$$33\mathrm{.}33/$unit$)$ $$400,000$ Current Assets $$150,000$

Gross Profit $($$$16\mathrm{.}67$ per unit$)$ $$200,000$ Net Fixed Assets $$50,000$ Shareholder Equity $$100,000$

warehousing $$70,000$

transportation $$24,000$ Total Assets $$200,000$ Total Liabilities and Equity $$200,000$

other expenses $$6,000$

EBIT $$100,000$

interest$/$taxes $$50,000$

Net Profit $$50,000$

Instructions:

Imagine you are a supply chain manager for this company and your base salary is $$75,000$ per year.

You participate in a bonus plan where the performance of the supply chain can earn you extra money.

Every point above the baseline ROA $(25\%)$ earns you a $$2000$ bonus.

While no questions here pertain to your bonus, please consider the motivation a supply chain

manager would have to improve ROA.

Note: Consider each action in $3-7$ as occuring in $2020$ and affecting the financial statements presented.

Each action in $3-7$ is independent and separate from other actions.

Questions $1$ and $2$ are worth $1$ point each.

Questions $3-8$ are worth $3$ points each.

$1.$ Baseline ROA: Return On Assets $(\%)=$ profits$/$assets

$1)$ answer

$2.$ Baseline Inventory turns $=$ COGS$/$Inventory $2)$ answer

$3.$ Must do an expedited delivery of $100$ units costing additional $$20$ per unit in transportation costs.

Will the company make or lose money on this transaction?

$3)$ answer

$4.$ Through good management practices you are able to double your inventory turns.

COGS remained the same, but inventory was cut in half. Consider the effect this will have on ROA.

If no other numbers change, what will be the new ROA?

$4)$ answer

$5.$ Using a reverse auction, Purchasing is able to reduce raw materials by $$0\mathrm{.}25$ per unit.

Consider how this will affect ROA. If no other numbers change, what will be the new ROA?

$5)$ answer

$6.$ Through more efficient packaging, raw material cost is reduced by $5\%$ and transportation

expense is reduced by $10\%.$ Consider the effect on ROA. If no other numbers change,

what will be the new ROA? $6)$ answer

$7.$ Using a streamlined EDI billing process, the company is able to convert

accounts receivables to cash much faster, which will reduce accounts receivable, and increase

cash at the end of the year. How will this affect the company's financial picture at the end of the year?

$7)$ answer

$8.$ Please take a moment to reflect on this exercise and write four or five sentences

describing what you have learned.

$8)$ answer