Imaging you are the manager of a small distribution company A and you are considering to buy a medium-sized distribution company, Distco, to expand your business. Some basic information of Distco: the COGS and SG&A determinations have changed every year in the past. They have three warehouses with two permanent staffs per warehouse (One to take orders and arrange shipping and one to package up orders) Temporary staff might be needed for busy times. In addition, the head office has a president, a receptionist, two bookkeepers and a two-person sales team Please answer the questions below (a) Please classify the following accounts into COGS, SG&A or asset. (16 points) Warehouse staff salaries Annual Christmas party Temporary staff salaries Purchase cost of chemicals and supplies Shipping cost from supplier to warehouse Shipping cost from warehouse to customer Phone costs Travel for sales staff Head office staff salaries Cost of benefits for permanent staff Cost of storage racks Utility bills New computer hardware and software to support integrated order, inventory, sale, and invoice system Membership in Chamber of Commercee Warehouse and office rental charges Snow removal and grounds upkeep costs (b) The accountant of Distco recast the financial data based on the information in raw accounts and returned with the following five-vear income statement for Distco (as illustrated in the table below). Please provide your detail evaluation on these income statements of Distco and what you would like to ask Distco. Be sure to look not only at aggregated net income from the business (which is slightly higher over the five-year period) but also at the margin. (14 points) Distco Summary Income Statement $000 Gross sales Year 1 Year 2 Year 3 Year 4 Year 5 4,6625,1266,2296,6416,978 Bad debt nil nil nil nil nil Net sale:s COGS 4,6625,1266,2296,6416,978 3,8464,2605,3885,8576,183 816 866841 Contribution margin 784 795 SG&A 420 434447 423 424 396 432394361 371 Operating income Other income and interest on long- term debt -40 -30 -60 -20 -50 351 Net income 336 382 354 331 (c) Please refer to the basic information of Distco given in the question and explain how you think that buying Distco can create value for the distribution company A. Moreover what can company A do to preserve value of Distco if you decide to buy Distco? (10 points) Imaging you are the manager of a small distribution company A and you are considering to buy a medium-sized distribution company, Distco, to expand your business. Some basic information of Distco: the COGS and SG&A determinations have changed every year in the past. They have three warehouses with two permanent staffs per warehouse (One to take orders and arrange shipping and one to package up orders) Temporary staff might be needed for busy times. In addition, the head office has a president, a receptionist, two bookkeepers and a two-person sales team Please answer the questions below (a) Please classify the following accounts into COGS, SG&A or asset. (16 points) Warehouse staff salaries Annual Christmas party Temporary staff salaries Purchase cost of chemicals and supplies Shipping cost from supplier to warehouse Shipping cost from warehouse to customer Phone costs Travel for sales staff Head office staff salaries Cost of benefits for permanent staff Cost of storage racks Utility bills New computer hardware and software to support integrated order, inventory, sale, and invoice system Membership in Chamber of Commercee Warehouse and office rental charges Snow removal and grounds upkeep costs (b) The accountant of Distco recast the financial data based on the information in raw accounts and returned with the following five-vear income statement for Distco (as illustrated in the table below). Please provide your detail evaluation on these income statements of Distco and what you would like to ask Distco. Be sure to look not only at aggregated net income from the business (which is slightly higher over the five-year period) but also at the margin. (14 points) Distco Summary Income Statement $000 Gross sales Year 1 Year 2 Year 3 Year 4 Year 5 4,6625,1266,2296,6416,978 Bad debt nil nil nil nil nil Net sale:s COGS 4,6625,1266,2296,6416,978 3,8464,2605,3885,8576,183 816 866841 Contribution margin 784 795 SG&A 420 434447 423 424 396 432394361 371 Operating income Other income and interest on long- term debt -40 -30 -60 -20 -50 351 Net income 336 382 354 331 (c) Please refer to the basic information of Distco given in the question and explain how you think that buying Distco can create value for the distribution company A. Moreover what can company A do to preserve value of Distco if you decide to buy Distco? (10 points)
