BM 220 – MANAGEMENT ACCOUNTING AND CONTROL

Case 6-1: Browning Manufacturing Company

ALLON, ROWENA T.
1997-65710

1.

Browning Manufacturing Company

Projected 2010 Statement of Cost of Goods Sold

Finished goods inventory, 257,040.0

1/1/10 0
Work in process inventory, 172,200.0
1/1/10 0
811,000.0
Materials used 0
Plus: Factory expenses
492,000.0
Direct manufacturing labor 0
Factory overhead:
Indirect manufacturing 198,000.0
labor 0
135,600.0
Power, heat and light 0
140,400.0
Depreciation of plant 0
49,200.0
Social Security taxes 0
Taxes and insurance, 52,800.0
factory 0
61,200.0 637,200.0
Supplies 0 0
2,112,400.00
Less: Work in process 210,448.0
inventory, 12/31/10 0
Cost of goods manufactured 1,901,952.0
(i.e. Completed) 0
2,158,992.0
0
Less: Finished goods 352,368.0
inventory, 12/31/10 0
1,806,624.
Cost of goods sold 00
 BM 220 – MANAGEMENT ACCOUNTING AND CONTROL
Case 6-1: Browning Manufacturing Company

ALLON, ROWENA T.
1997-65710

Browning Manufacturing Company

Projected 2010 Income Statement

Sales 2,562,000.00
Less: Sales returns and
allowances 19,200.00
Sales
discounts
allowed 49,200.00 68,400.00
Net Sales 2,493,600.00
Less: Cost of goods sold
(per schedule 1) 1,806,624.00
Gross margin 686,976.00
Less: Selling and
administrative
expense 522,000.00
Operating income 164,976.00
Interest
Less: expense 38,400.00
Income before federal and state
income tax 126,576.00
Less: Estimated income
tax expense 58,000.00
Net income 68,576.00
 BM 220 – MANAGEMENT ACCOUNTING AND CONTROL
Case 6-1: Browning Manufacturing Company

ALLON, ROWENA T.
1997-65710

Browning Manufacturing Company

Projected 2010 Balance Sheet

Asse
ts
Current Assets:
Cash and marketable securities 443,640.00
Accounts receivable (net of
allowance for DA) 201,360.00
Inventories:
124,520.0
Materials 0
210,448.0
Work in process 0
352,368.0
Finished goods 0
22,080.0
Supplies 0 709,416.00
Prepaid taxes and insurance 91,920.00
Total current assets 1,446,336.00
Other assets:
Manufacturing plant at cost 2,822,400.00
Less: Accumulated depreciation 1,047,600.00 1,774,800.00
Total Assets 3,221,136.00

Liabilities and Shareholders'

Equity
Current liabilities:
288,360.0
Accounts payable 0
552,840.0
Notes payable 0
5,800.0
Income taxes payable 0
Total current liabilities 847,000.00
Shareholders' equity:
1,512,000.0
Capital stock 0
862,136.0
Retained earnings 0 2,374,136.00
 BM 220 – MANAGEMENT ACCOUNTING AND CONTROL
Case 6-1: Browning Manufacturing Company

ALLON, ROWENA T.
1997-65710

Total Liabilites and Shareholders'

Equity 3,221,136.00
 BM 220 – MANAGEMENT ACCOUNTING AND CONTROL
Case 6-1: Browning Manufacturing Company

ALLON, ROWENA T.
1997-65710

2.

Accounts 2009 2010 % Inc/Dec

2,295,600. 2,562,000. Increas
Sales 00 00 12% e
17,640 19,200 Increas
Sales returns and allowances .00 .00 9% e
43,920 49,200 Increas
Sales discounts allowed .00 .00 12% e
Cost of goods sold (per 1,568,280. 1,806,624. Increas
schedule) 00 00 15% e
Selling and administrative 437,160 522,000 Increas
expense .00 .00 19% e
34,080 38,400 Increas
Interest expense .00 .00 13% e
Estimated income tax 89,520 58,000 Decreas
expense .00 .00 -35% e

Cash and marketable 118,440 443,640 Increas

securities .00 .00 275% e
311,760 201,360 Decreas
Accounts receivable (net) .00 .00 -35% e
110,520 124,520 Increas
Materials .00 .00 13% e
172,200 210,448 Increas
Work in process .00 .00 22% e
257,040 352,368 Increas
Finished goods .00 .00 37% e
17,280 22,080 Increas
Supplies .00 .00 28% e
66,720 91,920 Increas
Prepaid taxes and insurance .00 .00 38% e
2,678,400. 2,822,400. Increas
Manufacturing plant at cost 00 00 5% e

185,760 288,360 Increas

Accounts payable .00 .00 55% e
288,840 552,840 Increas
Notes payable .00 .00 91% e
9,00 5,80 Decreas
Income taxes payable 0.00 0.00 -36% e
 BM 220 – MANAGEMENT ACCOUNTING AND CONTROL
Case 6-1: Browning Manufacturing Company

ALLON, ROWENA T.
1997-65710

1,512,000. 1,512,000.
Capital stock 00 00 0% -
829,560 862,136 Increas
Retained earnings .00 .00 4% e

From the table above, it is noted that, for 2010, there is a remarkable
increase in the Cash and marketable securities account by 319%. Further,
there is also a decrease in the Accounts receivable account, which is good
because there is increase in cash due to the collections forecasted.

On the other hand, the accounts and notes payable accounts also increased
by 55% and 91%, respectively. This means that, aside from the collections of
accounts receivable in 2010, the other reason for increase in cash inflow is
due to the accounts and notes payables acquired.

Another notable difference is that the gross profit in 2010 is 2% higher than
that of 2009 (30% vs 28%). However, the income in 2010 decreases by 35%
as compared in 2009. One factor that may attributable to this decrease is
the increase in the selling and administrative expense account, which
increased by 19% in 2010.

3. The management will not achieve its notes payable repayment goal of a
year-end cash balance of approximately $150,000 after paying off at least
$350,000 and possibly as much as $400,000 of the notes payable to the
bank. This is because at the end of 2010, cash and marketable securities
account will have 443,640.00. If the company will pay off the minimum of
$350,000, cash and marketable securities account will have and ending
balance of $93,640.00, which is $4,160 less than its $150,000 goal.

In order to achieve its year-end cash balance goal, the company may reduce
its payable accounts, particularly its notes payable account. Also it may
reduce some of its expenses in order to increase the cash and net income
accounts.
 BM 220 – MANAGEMENT ACCOUNTING AND CONTROL
Case 6-1: Browning Manufacturing Company

ALLON, ROWENA T.
1997-65710

4. The inventory turnover of 2010 is lower than 2009 (a difference by 1). A low
turnover implies poor sales and, therefore, excess inventory. Thus,
management’s inventory turnover goal will not be achieved. To improve, the
company’s inventory turnover, the company should maximize its relationship
with its suppliers and customers. With this, your supplier is enabled to
produce and deliver materials in a timely, lower cost fashion that allows you
to minimize your inventory. On the other hand, when you establish
relationships with your customers, you can enable them to make their
demand for products more predictable thereby allowing you to minimize
finished product inventory without failing to meet their needs for volume and
timeliness.

5. In terms of the company’s trade credit standing, the budget may indicate
that the company may not be able to pay its obligation when they become
due. This may eventually mean poor creditor relationship that may affect the
company’s production and sales in the future.