ACG 2071 Managerial Accounting Process Costing Systems

Acg 2071 Managerial Accountingprocess Costing Systemsminicasejefferson

Jeffersonian Corporation has been in business for over 50 years. The company is looking to expand operations into the Pacific Rim and would like an analysis of its financial statements to be prepared. Review the financial statements below: Jeffersonian Corporation Comparative Income Statement For years ended December 31, 2011 and Sales $ 2,486,000.00 $ 2,075,000.00 Cost of goods sold $ 1,523,000.00 $ 1,222,000.00 Gross Profit $ 963,000.00 $ 853,000.00 Operating Expenses Salaries Expense $ 145,000.00 $ 100,000.00 Contract Labor Expense $ 240,000.00 $ 280,000.00 Insurance Expense $ 165,000.00 $ 200,000.00 Supplies expense $ 100,000.00 $ 45,000.00 Depreciation Expense $ 26,000.00 $ 35,000.00 Miscellaneous expense $ 85,000.00 $ 75,000.00 Marketing and Promotion expense $ 17,000.00 $ 15,000.00 Total operating expenses $ 778,000.00 $ 750,000.00 Operating Income $ 185,000.00 $ 103,000.00 Interest expense $ 44,000.00 $ 46,000.00 Income before taxes $ 141,000.00 $ 57,000.00 Income taxes $ 47,000.00 $ 19,000.00 Net Income $ 94,000.00 $ 38,000.00 ACG 2071 Managerial Accounting Process Costing Systems Minicase Jeffersonian Corporation Comparative Balance Sheet For years ended December 31, 2011 and Assets Current Assets Cash $ 79,000.00 $ 42,000.00 Marketable Securities $ 65,000.00 $ 96,000.00 Accounts receivable $ 120,000.00 $ 100,000.00 Merchandise inventory $ 250,000.00 $ 265,000.00 Total current assets $ 514,000.00 $ 503,000.00 Fixed Assets Store Equipment, net $ 400,000.00 $ 350,000.00 Office Equipment, et $ 45,000.00 $ 50,000.00 Building, net $ 625,000.00 $ 675,000.00 Land $ 100,000.00 $ 100,000.00 Total fixed assets $ 1,170,000.00 $ 1,175,000.00 Total assets $ 1,684,000.00 $ 1,678,000.00 Liabilities Current Liabilities Accounts payable $ 164,000.00 $ 190,000.00 Short term Liabilities $ 75,000.00 $ 90,000.00 Taxes payable $ 26,000.00 $ 12,000.00 Total current liabilities $ 265,000.00 $ 292,000.00 Long-term liabilities Mortgage payable $ 400,000.00 $ 420,000.00 Total liabilities $ 665,000.00 $ 712,000.00 Stockholder's Equity Common Stock, $5 par value $ 475,000.00 $ 475,000.00 Retained earnings $ 544,000.00 $ 491,000.00 Total stockholder's equity $ 1,019,000.00 $ 966,000.00 Total $ 1,684,000.00 $ 1,678,000.00 ACG 2071 Managerial Accounting Process Costing Systems Minicase REQUIRED: 1. Prepare comparative income statements for year 2011 in comparison to year 2010. 2. Prepare common-size comparative balance sheet for years 2011 and 2010. Compute the following ratios for 2011: current ratio, profit margin ratio, acid-test ratio, total asset turnover, accounts receivable turnover, return on total assets, days’ sales uncollected, earnings per share, inventory turnover, price earnings ratio, debt-to-equity ratio, dividend yield, times interest earned.

Paper For Above instruction

Jeffersonian Corporation, a longstanding enterprise with over five decades of operational history, is evaluating its financial stance as it considers expanding into the Pacific Rim. Analyzing its financial statements—specifically its income statement, balance sheet, and calculated ratios—provides insights into its profitability, liquidity, efficiency, and leverage, which are essential for strategic decision-making and ensuring sustainable growth during international expansion.

Comparative Income Statement Analysis

The income statements for 2010 and 2011 reveal significant growth in sales, from approximately $2.075 million to $2.486 million—an increase of about 19.7%. Correspondingly, cost of goods sold (COGS) rose from $1.222 million to $1.523 million, maintaining a consistent gross profit margin of roughly 40%. Gross profit surged from $853,000 in 2010 to $963,000 in 2011, reflecting increased revenue retention.

Operating expenses saw mixed trends: salaries expense increased sharply from $100,000 to $145,000, indicative of possibly higher staffing for expansion; contract labor expenses decreased slightly, suggesting improved operational efficiency or renegotiation of contracts. Insurance expense decreased from $200,000 to $165,000, possibly due to policy adjustments or risk management strategies. Supplies expense doubled, which warrants further scrutiny, possibly linked to increased inventory or procurement costs. Depreciation expenses decreased from $35,000 to $26,000, potentially due to asset devaluation or asset management strategies. Overall, total operating expenses increased modestly from $750,000 to $778,000.

Operating income markedly improved, from $103,000 to $185,000, highlighting higher profitability despite rising expenses. Interest expense remained relatively stable, slightly decreasing from $46,000 to $44,000. Income before taxes increased substantially, from $57,000 to $141,000, indicative of better operating performance. The income tax expense rose from $19,000 to $47,000, aligned with increased pretax income. Net income more than doubled, rising from $38,000 to $94,000, showcasing strong overall financial health and efficiency gains.

Comparative Balance Sheet Analysis

The balance sheets for 2010 and 2011 show a stable total asset base, increasing marginally from $1.678 million to $1.684 million. Notably, cash holdings increased significantly from $42,000 to $79,000, improving liquidity. Marketable securities decreased from $96,000 to $65,000, possibly indicating asset reallocation or investment adjustments. Accounts receivable increased from $100,000 to $120,000, suggesting higher sales credit extending, which necessitates efficiency analysis through receivables turnover.

Inventory levels slightly declined from $265,000 to $250,000, suggesting better inventory management or sales performance improvements. Fixed assets grew from $1,175,000 to $1,170,000, with store equipment increasing from $350,000 to $400,000, reflecting new investments or upgrades. The building's net value decreased from $675,000 to $625,000, possibly due to depreciation or asset disposals. Land holdings remained constant at $100,000.

Liability management indicates a reduction in current liabilities from $292,000 to $265,000, with accounts payable decreasing from $190,000 to $164,000, aligning with improved supplier relations or payment strategies. Short-term liabilities also declined. However, taxes payable increased from $12,000 to $26,000, correlating with increased taxable income. Long-term liabilities decreased slightly from $420,000 to $400,000, showing some debt repayment or restructuring. Stockholder’s equity increased from $966,000 to $1,019,000, driven by retained earnings growth from $491,000 to $544,000, reflecting retained profits utilized for reinvestment or reserve build-up.

Financial Ratios Analysis

Liquidity Ratios

• Current Ratio: Measures ability to meet short-term obligations. For 2011: Current Assets ($514,000) / Current Liabilities ($265,000) ≈ 1.94, indicating good liquidity.
• Acid-test Ratio: Excludes inventory. ($514,000 - $250,000) / $265,000 ≈ 0.99, suggesting adequate liquid assets for immediate liabilities.

Profit Margin and Efficiency Ratios

• Profit Margin Ratio: Net Income / Sales = $94,000 / $2,486,000 ≈ 3.78%, reflecting the company's profitability efficiency.
• Total Asset Turnover: Sales / Total Assets = $2,486,000 / $1,684,000 ≈ 1.48, indicating effective utilization of assets to generate sales.
• Accounts Receivable Turnover: Sales / Accounts receivable = $2,486,000 / $120,000 ≈ 20.72 times, suggesting efficient collection processes.
• Days’ Sales Uncollected: 365 / Accounts Receivable Turnover ≈ 17.6 days, implying prompt collection of receivables.

Profitability Ratios

• Return on Total Assets: Net Income / Total Assets = $94,000 / $1,684,000 ≈ 5.58%, demonstrating asset efficiency in generating profit.
• Return on Equity: Net Income / Shareholder’s Equity = $94,000 / $1,019,000 ≈ 9.22%, reflecting shareholders' return.
• Earnings Per Share: Net Income / Number of Shares. Assuming 95,000 shares (based on $5 par value of stock): $94,000 / 95,000 ≈ $0.99 per share.

Leverage and Market Ratios

• Debt-to-Equity Ratio: Total Debt / Shareholder's Equity = ($665,000) / $1,019,000 ≈ 0.65, indicating moderate leverage.
• Dividend Yield: (Dividends per share / Market Price per share). Assuming dividends are paid from net income proportionally: Dividend payout ratio approximated at 40%, with dividend per share ≈ $0.40, and market price assumes historical PE ratio; detailed calculation would depend on market info.
• Price-Earnings Ratio: Market Price per share / Earnings per share. Without market price info, estimation isn't possible; but if a common P/E ratio of 15 is used, market price ≈ $14.85.
• Times Interest Earned: Operating Income / Interest Expense = $185,000 / $44,000 ≈ 4.2 times, indicating reasonable capacity to meet interest payments.

Conclusion

Jeffersonian Corporation's financial analysis indicates a solid upward trend in profitability, improved liquidity, and efficient asset utilization. Its liquidity ratios, especially the current ratio nearing 2, suggest adequate capacity to cover short-term obligations, essential for funding expansion initiatives. The company's moderate debt-to-equity ratio implies manageable leverage risks. The profitability ratios, including return on assets and earnings per share, reflect effective management and operational efficiency. The positive trends in retained earnings reinforce financial stability, vital for new ventures abroad. Overall, Jeffersonian has demonstrated resilient financial health, positioning it well for international expansion, provided ongoing monitoring of working capital and debt levels is maintained.

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