Larsen Chemical

Managerial
Industries
Accounting
Jerbie J. Aldea
Ayla Valencia
Angelica Aguilar
Company Profile
LARSEN COMPANY

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Company Profile

 Agrobased Company
 dealing in Crop
Protection Chemicals,
Seeds & Fertilizers.
 established itself as
one of the quality
product provider in
Agricultural sector.

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Case at hand
FINANCING ISSUE

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Facts of the case

 LarsenCompany
makes fertilizer in a
Midwestern State
 The company has
nearly completed a
new plant that will
produce twice as
much as the old
plant which is being
scrapped
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Facts of the case
 Swen Larsen the owner
has consulted you about
his financing requirements
for the coming year
 He is on good terms with
local bankers and
anticipates no difficulty in
obtaining the loan but he
is anxious that the loan
not to be too large or
too small.
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Facts of the case

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Facts of the case

 The depreciation
expense on the
plant was 80, 000
per year, all of which
was included in cost
of goods sold.
 The new plant will
be depreciated at
120,000 per year.
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Facts of the case
 Wages paid to production
workers were 280, 000
last year and is expected
to be 360,000 in the
coming year
 Selling, general and
administrative
expenses are expected
to be 430,000 during the
coming year

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Facts of the case

 Sales will be only

120% of last year’s
sales
 Larsen expects to
spend 250,000
buying the new
equipment to
complete the new
plant
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Facts of the case
 The factory will be
operating at full capacity
the last few months of the
year, so ending
requirement for current
assets should be double
the beginning amounts
 Accounts Payable is
closely related to the
amount of the inventory
carried.
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Required
 Preparea budgeted
income statement
for 19x5 and a pro
forma balance
sheet for December
31, 19x5.
 Stateany
assumptions you
have to make and
indicate how much
Mr. Larsen must
borrow from the BEST FOR
Proposed Solutions

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Solution 1 14

Property, Plant & Equipment, Beg. 700,000.00

Add: Purchase of new equipment 250,000.00

(120,000.0
Accumulated Depreciation 0)

Property, Plant & Equipment, 830,000.0

End 0

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Solution 2 15

Materials 480,000.00 (400,000 * 120%)

Direct Labor 280,000.00

Factory
Overhead 360,000.00

Depreciation 120,000.00

Cost of 1,240,000.
Sales 00

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Solution 3 16

150,000.0
Retained Earnings, Beginning 0

250,000.0
Income (19x5) 0

400,000.
Retained Earnings, End 00

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SUMMARY AND
RECOMMENDATION

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SUMMARY AND
RECOMMENDATION
 Mr.Swen Larsen indicates
that he wants to loan an
amount that is not too
large or too small. With
the completion of the
new plant, the company
expects to generate more
sales on credit and the
amount 230,000.00 is
enough to cover any
necessary expenses.
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Thank you
MANAGERIAL ACCOUNTING – DR. ROBERT Y. CO

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