Blendpro distributors case study?
what decision should take by the decision maker and why.?
In the summer of 2003, Roberta Gregorio, a young entrepreneur, stumbled upon a new business idea while vacationing in Italy. The product, an industrial smoothie blender, was gaining popularity in Europe where restaurant and caf customers were demanding healthy, blended fruit and vegetable drinks. The product had recently been introduced in the United States, by four regional distributors, under the brand name Ital- Ice. Initial response had been favorable; however, an agent had yet to be found to distribute the Ital-Ice in Canada. As a previous fitness club manager, Gregorio immediately recognized the potential of the product and contacted the manufacturer. An agreement was signed a short time later that granted Gregorio an exclusive licence to distribute the product in Ontario and Quebec. Due to the low volume of units expected to be sold in the Canadian market, the manufacturer informed Gregorio that she should initially obtain her inventory through the American distributors. On October 1, 2003, BlendPro Distributors Inc. began operations with 200 Ital-Ice blenders, valued at $80,000.' Gregorio decided to use the periodic system for inventory valuation. PURCHASES Gregorio made several purchases throughout fiscal 2004, which came from two different U.S. suppliers: Matteo Foods (Matteo) and Dante Wholesalers (Dante). Matteo offered credit terms of 2/10, 20 EOM and shipped FOB destination. Matteo promised that as purchase volumes increased, the gross invoice cost per unit would decrease. Dante offered more attractive credit terms of 2/15, n/90, and delivered goods FOB shipping point (see Exhibit 1). The discount period was calculated from the date of ownership. Shipping Information 1. All shipments were delivered by Dumphrey Transportation. Freight and insurance charges amounted to $7 per unit, when applicable. After all applicable charges. 2. Customs duties were equal to 15 per cent of the invoice price, and were paid by Dumphrey Transportation at the point of importation. These charges were collected by the shipping company at the point of destination. Dumphrey Transportation demanded cash on delivery. Inventory Several incidences occurred with regards to inventory during the first year of operations. Ten Ital-Ice blenders from the June 3 shipment were badly damaged and had to be returned to the supplier. Dante agreed to credit Gregorio's account for the invoice cost and duties. Dante also offered to pay return transportation in order to maintain a good relationship with BlendPro. Then, on September 23, 2004, the company's warehouse was robbed and three units were stolen. Gregorio performed a physical inventory count on September 30, 2004, which revealed that a total of 262 Ital-Ice blenders remained on hand. Sales and Promotion Gross sales of $283,920 (546 units) had pleased Gregorio. She noted that although six units had been returned to BlendPro throughout the year, none of them were damaged. REQUIRED 1. Post all opening balances and inventory-related transactions in T-accounts for fiscal 2004. Calculate the average unit cost for each purchase (after any returns) during fiscal 2004 and the cost of goods available for sale. Please take average unit costs to three decimal places. 2. Calculate to the nearest dollar the ending inventory value and the subsequent cost of goods sold using FIFO and the average cost method. 3. Assume that the manufacturer announced the introduction of a new model with additional accessories and a sleeker design in September 2004. Production of the old model would be discontinued immediately. Gregorio estimated that the remaining units on hand could be liquidated at a price of $410 per unit. Assuming the drop in net realizable value per unit was permanent, would this information have any effect on the inventory value recorded on the September 30, 2004 balance sheet? Why? Exhibit 1 FISCAL 2004 PURCHASE SCHEDULE Supplier Units Ordered Matteo Dante Matteo Date Ordered December 12, 2003 May 2, 2004 September 17, 2004 Date Shipped December 17, 2003 May 29, 2004 September 25, 2004 Date Received December 20, 2003 June 3, 2004 In-transit 360 255 600 Gross Invoice Cost S142,200 $370 per unit $365 per unit Date Paid December 29, 2003 July 21, 2004 NA
