Diamond Company
Statement of Comprehensive Income for the year ended December 31, 2019
Sales revenue Cost of goods sold Gross profit		$1,294,000 737,000 $557,000
Operating Expenses Advertising expense	$ 7,900
Depreciation expense Salaries expense	64,000 169,000	240,900
Profit		$316,100
Diamond Company
Statement of Financial Position December 31, 2019
Assets
Current Assets Cash		$ 37,000
Accounts receivable Inventory Total current assets		115,000 106,500 $258,500
Non-current Assets
Property, Plant, & Equipment	$565,000
Less: Accumulated depreciation	115,000	450,000
Total Assets		$708,500
Liabilities
Current Liabilities
Accounts payable		$177,000
Total current liabilities		$177,000
Non-current Liabilities
Bank loan (payable in 3 years)		254,000
Total liabilities		$431,000
Shareholders Equity
Common shares		$245,000
Retained earnings		32,500
Total equity		277,500
Total Liabilities and Shareholders Equity		$708,500

Using Diamond Companys financial statements, calculate the following ratios to one (1) decimal place, and answer the questions that follow:

1a)

i) working capital

ii) current ratio

iii) quick ratio or acid test

iv) Explain what the current and acid test ratios you calculated above communicate with respect to the companys ability to repay its short-term debts. (1 mark)

(b) Days sales outstanding (2 marks)

2a) Calculate gross profit (or gross margin) ratio. (2 marks)

b) If the acceptable industry average for gross profit is 40%, explain how the company is doing relative to the industry standard. (1 mark)

c) Identify and explain two (2) ways in which the company could improve its gross profit (or gross margin) ratio. (4 marks)

d) Calculate inventory turnover. (2 marks)

e) Calculate the number of days it takes Diamond Company to sell its inventory. (2 marks)

3) Assume Diamond Companys credit policy for its customers is 35 days. Using the ratios calculated above and any other ratios you deem necessary, comment on Diamond Companys liquidity at December 31, 2019. (3 marks)

4. a) Identify and provide an example for each of the four (4) elements of a management control system present in the following example: (4 marks mark per element; mark per explanation)

The Chocolate Dream Company makes chocolate bars in its factory every day. To pass quality control, each chocolate bar must weigh between 200 and 210 grams. A scale is used to weigh each chocolate bar that the company produces. Any chocolate bars that are over or under this standard are taken off the production line. Management receives a report of the number of chocolate bars rejected on a weekly basis. Line managers are notified if rejects are greater than 5% of total weekly production and make the necessary changes to the production process.

b) Chocolate Dream Company is looking to improve its gross profit. Using a balanced scorecard, identify and provide a specific example of two (2) perspectives that the company could examine. (4 marks)