MAKE OR BREAK IT IN THE PLASTICS INDUSTRY: What are all the key issues for this case? What is a potential solution for each issue?
History:
The company began operations in Windsor Ontario in 2000 as a try out facility and then in 2002 began producing parts and became a full injection molder. The company has 13 presses ranging from 100T to 3500T. They do work for the automotive and nonautomotive industry. The make-up is 85% automotive and 15% non-automotive. In 2008 the company was almost bankrupt because of the financial crisis. All work was terminated. George Wufski did not get paid for 2 years after the meltdown. George and Zippo lent additional monies through shareholder loans to help the company and Jeff bought the shares of one shareholder who left during the financial difficulties. Ownership is a group of 5 individuals who have many years of experience in the industry. George Wufski owns 53% of the company, and his son Jeff Wufski owns 8%, Zippo Maskue owns 14%, Angelo Bassimo owns 17%, and Ralph Usar owns 8%, he is an American citizen. George is 70 years old. Jeff is 32 years old with a spouse who is a medical doctor. Zippo is 52 years old, with spouse owns the shares and does not like to sign any documents. Angelo is 56 years old, and his spouse owns the shares. They have had medical issues and financial problems. Ralph Usar is 54 years old, and his wife owns the shares. She is a constant problem with the ownership and refuses to sign any legal documents. Wuf Plastics Inc. makes several plastic products for the automotive industry. The previous two years of statements are provided for reference as Exhibit 1. You will also find a trial balance sheet for the current year as Exhibit 2. Exhibit 3 are notes from the financial statements. The company has brought in their accounting firm, PITS LLP Charted Accountants (PITS) to look at their books. The reason is their bank DesFlowers Credit Union, (DCU), is concerned.
Current Environment:
The company is still struggling with the slowdown due to COVID-19, and in addition the industry constraints on material have put significant pressure on the companys viability. Manufacturers of the resin which is a key ingredient in plastic injection molding have instituted a force majeure, which has made the company buy inventory in advance due to potential shortages. Another factor is chip shortages which effects the company indirectly as parts are not being made for the cars until the companies can secure the necessary chips to produce a full vehicle. These delays cause significant problems in their expected sales versus actual sales.
Summary:
Angie Habs, the principal at PITS has asked you, Newbie Accountant to put together the balance sheet and income statement for the current year. Once you have completed the statements then use that information to compare to the previous years to determine what types of issues Wuz Inc. is having and what are some potential solutions to the company. Exhibit 3 provides some additional information when reviewing the information and Exhibit 4 is expected sales for the balance of the year and increased expenses in some for informational purposes. You will need to include a SWOT analysis, consider critical success factors, and prepare a balanced scorecard for the company as well as do a full analysis of the financial statements including a break-even as part of your assessment process.
Exhibit 1 Wuf Plastics Inc. Balance Sheet as at September 30, 2020 2020 Current Assets Notes Current Assets Cash and cash equivalents $ 514,192 Cash and short term investments Accounts Receivable 697,236 Accounts Receivable Government Remittances Recoverable 152,063 Foreign Exchange Receivable Inventory 525,144 Inventory Prepaid expenses and deposits 58,514 Prepaid expenses and deposits Total Current Assets 1,947,149 Total Current Assets 2019 Notes S 1,794,283 106,012 472,751 9,763 2,382,809 1 1 Property Plant and Equipment - Net Due from Related Parties Investments Total Assets 2,283,304 879,691 7,860 $ 5,118,004 Property Plant and Equipment - Net Due from Related Parties Investments Total Assets 2,554,924 497,152 7,813 $ 5,442,698 $ 418,337 31,277 Current Liabilities Bank operating line Accounts payable Government Remittances Payable Unearned Revenue Taxes Payable Current Portion of Capital Leases Current Portion of Long Term Debt Total Current Liabilities $ Current Liabilities Bank operating line Accounts payable Government Remittances Payable Unearned Revenue Taxes Payable Current Portion of Capital Leases Current Portion of Long Term Debt Total Current Liabilities $ 131,707 1,021,787 0 $ 184,010 3,744 34,718 348,959 1,724,925 2 2 43,722 699,945 1,193,281 Long Term Debt Equipment loans Capital Lease Due To Shareholders Total Long Term Debt 773,831 38,515 968,359 1,780,705 Long Term Debt Equipment loans Capital Leases Due To Shareholders Total Long Term Debt 655,620 70,308 968,359 1,694,287 Total Liabilities 2,973,986 Total Liabilities 3,419,212 Shareholders Equity Share Capital Retained Earnings Total Shareholders Equity 300 2,143,718 2,144,018 Share Capital Retained Earnings Total Shareholders Equity 300 2,023,186 2,023,486 Total Liabilities and Equity $ 5,118,004 Total Liabilities and Equity $5,442,698 Wuf Plastics Inc. Income Statement for the year-ended September 30, 2020 2020 2019 Notes Revenue Revenue Other Revenue Total $ 5,054,877 $ 549,235 $ 5,604,112 Notes Revenue Revenue 3 Other Revenue Total $ 6,972,673 $ 1,254,653 $ 8,227,326 3 Cost of Goods Sold Material Labour Repairs and Maintenance Total Direct Cost $ 2,996,788 $ 1,346,373 $ 112,280 $ 4,455,441 Cost of Goods Sold Material Labour Repairs and Maintenance Total Direct Cost $ 3,834,659 2,016,451 162,850 $ 6,013,960 Gross Profit $ 1,148,671 Gross Profit $ 2,213,366 Administrative and General Expenses Marketing Automotive & Travel Expenses Bad Debt Interest and bank charges Insurance/Benefits Interest on long-term debt Interest on capital lease obligations Office Professional Fees Rent Utilities Amortization Total Expenses 1,522 33,411 (7,725) 9,274 143,341 48,235 4,308 86,406 $ 148,034 100,000 269,887 303,179 $ 1,139,872 Administrative and General Expenses Marketing Automotive & Travel Expenses Bad Debt Interest and bank charges Insurance/Benefits Interest on long-term debt Interest on capital lease obligations Office Professional Fees Rent Utilities Amortization Total Expenses 8,332 39,393 15,740 13,430 190,379 52,753 3,823 126,762 $ 97,165 160,000 273,962 340,569 $ 1,322,308 $ 8,799 4,196 131,177 Net Income before Other Items Interest Income Foreign Exchange Gain Loss on sale of Capital Assets Net Income Before Taxes Provision for Taxes Net Income before Other Items Interest Income Foreign Exchange Gain Loss on sale of Capital Assets Net Income Before Taxes Provision for Taxes $ 891,058 3,403 58,941 $ (6,796) $ 946,606 $ 160,050 144,172 23,640 Net income $ 120,532 Net income $ 786,556 Exhibit 2 Wuf Plastics Inc. Trial Balance As at 05/31/2021 Account No. Account Description Debits 1010 Bank - TDCT (CDN) 0.00 1020 Bank - HSBC 0.00 1030 Desflowers Share Account 5.00 1060 Petty Cash 30.10 1063 Desflowers Credit Union 30,407.00 1100 Investments 0.00 1200 Accounts Receivable 920,561.02 1205 Allowance for Doubtful Account: 0.00 1220 Payroll Advances 0.00 1310 Prepaid Deposits 670.04 1320 Prepaid Deposits - Utilities 1,853.63 1325 Prepaid Expense 44,511.13 1520 Inventory 441,005.00 1580 Finished Goods Inventory 4,120.00 1611 Related Party Loan USD 1,525,367.83 1612 FX on related party loan 462,857.17 1820 Equipment 2,488,325.76 1821 Amortization Equipment 0.00 1830 Machinery - Cranes 500,327.51 1831 Amortization - Cranes 0.00 1834 Machinery 1,016,714.27 1835 Amortization Machinery 0.00 1888 Acc. Amort.-Ass. under capital 1 0.00 1889 Assets Under Capital Leases 40,970.00 1935 Investment in Other Company 5,600.00 1945 Foreign Exchange in Investment 1,960.00 2100 Accounts Payable 0.00 2126 Term Loan 1 0.00 2127 Term Loan 2 0.00 2128 Capital Lease 0.00 2129 LOC Desflowers 0.00 2130 Taxes Payable 39,084.00 2178 Current Portion of Loan 0.00 2179 Current Portion of Capital Lease 0.00 2681 Shareholder A 0.00 2682 Shareholder B 0.00 2683 Shareholder C 0.00 2684 Shareholder D 0.00 2685 Shareholder E 0.00 3350 Common Shares/Share Capital 0.00 3560 Retained Earnings 0.00 Credits 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 755,321.12 0.00 262,093.26 0.00 443,528.56 11,471.60 0.00 0.00 0.00 438,862.00 1,250,141.00 761,617.00 22,189.00 640,000.00 0.00 30,000.00 9,000.00 82,723.68 436,559.91 57,340.87 144,864.11 246,870.00 300.00 2,143,718.00 4200 Sales 4220 Sales Returns 4240 Sales Discounts 4310 Scrap Revenue 4330 Mold Revenue (New Molds) 4460 Misc Revenue 4461 Interest Income 5010 Raw Material (Resin) 5122 Resin bought from Flos 5410 Wages & Salaries 5412 Management Wages 5415 Wage Subsidies 5610 Accounting & Legal 5612 Consultant/Professional 5615 Marketing 5620 Bad Debts 5640 Office 5650 Currency Exchange & Rounding 5660 Amortization Expense 5680 Income Taxes 5685 Insurance 5686 Benefits 5687 Bank Charges 5690 Interest & Bank Charges 5691 Interest paid on Capital Lease 5762 Repairs & Maintenance 5770 Equipment Rental 5778 Car Expense 5790 Utilities 5792 Rent 5820 Gain disposition of capital assets 5998 Ask My Accountant 0.00 0.00 0.00 0.00 0.00 0.00 0.00 557,230.23 227,390.67 1,001,099.90 547,348.71 0.00 0.00 97,564.00 2,526.29 0.00 128,756.00 78,784.12 224,000.00 0.00 84,043.40 33,998.73 6,800.01 40,775.71 3,908.00 91,592.02 0.00 19,315.23 190,463.80 106,666.54 0.00 0.00 2,385,103.40 0.00 0.00 31,407.77 220,718.54 41,541.69 169.00 0.00 0.00 0.00 0.00 512,008.31 0.00 0.00 0.00 0.00 0.00 0.00 0.00 39,084.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 10,966,632.82 10,966,632.82 Exhibit 3 Wuf Plastics Inc. Notes to Financial Statements 1. Due from Related parties and foreign exchange(FX) 2. Taxes Payable at a rate of 15.5% for Income under $500,000 3. Other Revenue: consists of scrap revenue,miscellaneous revenue, fees and new molds. Other Expenses: include building of molds, and general expenses Exhibit 4 Expected Sales: $ Sales Other Revenue June 350,000 $ 75,000 $ July 500,000 $ 50,000 $ August September 425,000 $ 575,000 65,000 $ 75,000 $ Expected Expenses: Increase in Bank Charges Increase in Interest on Long Term Debt Foreign Exchange $ $ $ 2,500 $ 7,500 $ 10,000 $ 3,000 $ 7,500 $ 12,000 $ 1,000 $ 10,000 $ 1,000 $ 10,000 1,500 Assumptions 1. These are increase to the average per month expenses. 2. All other expenses to remain the same based on the average per month. Exhibit 1 Wuf Plastics Inc. Balance Sheet as at September 30, 2020 2020 Current Assets Notes Current Assets Cash and cash equivalents $ 514,192 Cash and short term investments Accounts Receivable 697,236 Accounts Receivable Government Remittances Recoverable 152,063 Foreign Exchange Receivable Inventory 525,144 Inventory Prepaid expenses and deposits 58,514 Prepaid expenses and deposits Total Current Assets 1,947,149 Total Current Assets 2019 Notes S 1,794,283 106,012 472,751 9,763 2,382,809 1 1 Property Plant and Equipment - Net Due from Related Parties Investments Total Assets 2,283,304 879,691 7,860 $ 5,118,004 Property Plant and Equipment - Net Due from Related Parties Investments Total Assets 2,554,924 497,152 7,813 $ 5,442,698 $ 418,337 31,277 Current Liabilities Bank operating line Accounts payable Government Remittances Payable Unearned Revenue Taxes Payable Current Portion of Capital Leases Current Portion of Long Term Debt Total Current Liabilities $ Current Liabilities Bank operating line Accounts payable Government Remittances Payable Unearned Revenue Taxes Payable Current Portion of Capital Leases Current Portion of Long Term Debt Total Current Liabilities $ 131,707 1,021,787 0 $ 184,010 3,744 34,718 348,959 1,724,925 2 2 43,722 699,945 1,193,281 Long Term Debt Equipment loans Capital Lease Due To Shareholders Total Long Term Debt 773,831 38,515 968,359 1,780,705 Long Term Debt Equipment loans Capital Leases Due To Shareholders Total Long Term Debt 655,620 70,308 968,359 1,694,287 Total Liabilities 2,973,986 Total Liabilities 3,419,212 Shareholders Equity Share Capital Retained Earnings Total Shareholders Equity 300 2,143,718 2,144,018 Share Capital Retained Earnings Total Shareholders Equity 300 2,023,186 2,023,486 Total Liabilities and Equity $ 5,118,004 Total Liabilities and Equity $5,442,698 Wuf Plastics Inc. Income Statement for the year-ended September 30, 2020 2020 2019 Notes Revenue Revenue Other Revenue Total $ 5,054,877 $ 549,235 $ 5,604,112 Notes Revenue Revenue 3 Other Revenue Total $ 6,972,673 $ 1,254,653 $ 8,227,326 3 Cost of Goods Sold Material Labour Repairs and Maintenance Total Direct Cost $ 2,996,788 $ 1,346,373 $ 112,280 $ 4,455,441 Cost of Goods Sold Material Labour Repairs and Maintenance Total Direct Cost $ 3,834,659 2,016,451 162,850 $ 6,013,960 Gross Profit $ 1,148,671 Gross Profit $ 2,213,366 Administrative and General Expenses Marketing Automotive & Travel Expenses Bad Debt Interest and bank charges Insurance/Benefits Interest on long-term debt Interest on capital lease obligations Office Professional Fees Rent Utilities Amortization Total Expenses 1,522 33,411 (7,725) 9,274 143,341 48,235 4,308 86,406 $ 148,034 100,000 269,887 303,179 $ 1,139,872 Administrative and General Expenses Marketing Automotive & Travel Expenses Bad Debt Interest and bank charges Insurance/Benefits Interest on long-term debt Interest on capital lease obligations Office Professional Fees Rent Utilities Amortization Total Expenses 8,332 39,393 15,740 13,430 190,379 52,753 3,823 126,762 $ 97,165 160,000 273,962 340,569 $ 1,322,308 $ 8,799 4,196 131,177 Net Income before Other Items Interest Income Foreign Exchange Gain Loss on sale of Capital Assets Net Income Before Taxes Provision for Taxes Net Income before Other Items Interest Income Foreign Exchange Gain Loss on sale of Capital Assets Net Income Before Taxes Provision for Taxes $ 891,058 3,403 58,941 $ (6,796) $ 946,606 $ 160,050 144,172 23,640 Net income $ 120,532 Net income $ 786,556 Exhibit 2 Wuf Plastics Inc. Trial Balance As at 05/31/2021 Account No. Account Description Debits 1010 Bank - TDCT (CDN) 0.00 1020 Bank - HSBC 0.00 1030 Desflowers Share Account 5.00 1060 Petty Cash 30.10 1063 Desflowers Credit Union 30,407.00 1100 Investments 0.00 1200 Accounts Receivable 920,561.02 1205 Allowance for Doubtful Account: 0.00 1220 Payroll Advances 0.00 1310 Prepaid Deposits 670.04 1320 Prepaid Deposits - Utilities 1,853.63 1325 Prepaid Expense 44,511.13 1520 Inventory 441,005.00 1580 Finished Goods Inventory 4,120.00 1611 Related Party Loan USD 1,525,367.83 1612 FX on related party loan 462,857.17 1820 Equipment 2,488,325.76 1821 Amortization Equipment 0.00 1830 Machinery - Cranes 500,327.51 1831 Amortization - Cranes 0.00 1834 Machinery 1,016,714.27 1835 Amortization Machinery 0.00 1888 Acc. Amort.-Ass. under capital 1 0.00 1889 Assets Under Capital Leases 40,970.00 1935 Investment in Other Company 5,600.00 1945 Foreign Exchange in Investment 1,960.00 2100 Accounts Payable 0.00 2126 Term Loan 1 0.00 2127 Term Loan 2 0.00 2128 Capital Lease 0.00 2129 LOC Desflowers 0.00 2130 Taxes Payable 39,084.00 2178 Current Portion of Loan 0.00 2179 Current Portion of Capital Lease 0.00 2681 Shareholder A 0.00 2682 Shareholder B 0.00 2683 Shareholder C 0.00 2684 Shareholder D 0.00 2685 Shareholder E 0.00 3350 Common Shares/Share Capital 0.00 3560 Retained Earnings 0.00 Credits 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 755,321.12 0.00 262,093.26 0.00 443,528.56 11,471.60 0.00 0.00 0.00 438,862.00 1,250,141.00 761,617.00 22,189.00 640,000.00 0.00 30,000.00 9,000.00 82,723.68 436,559.91 57,340.87 144,864.11 246,870.00 300.00 2,143,718.00 4200 Sales 4220 Sales Returns 4240 Sales Discounts 4310 Scrap Revenue 4330 Mold Revenue (New Molds) 4460 Misc Revenue 4461 Interest Income 5010 Raw Material (Resin) 5122 Resin bought from Flos 5410 Wages & Salaries 5412 Management Wages 5415 Wage Subsidies 5610 Accounting & Legal 5612 Consultant/Professional 5615 Marketing 5620 Bad Debts 5640 Office 5650 Currency Exchange & Rounding 5660 Amortization Expense 5680 Income Taxes 5685 Insurance 5686 Benefits 5687 Bank Charges 5690 Interest & Bank Charges 5691 Interest paid on Capital Lease 5762 Repairs & Maintenance 5770 Equipment Rental 5778 Car Expense 5790 Utilities 5792 Rent 5820 Gain disposition of capital assets 5998 Ask My Accountant 0.00 0.00 0.00 0.00 0.00 0.00 0.00 557,230.23 227,390.67 1,001,099.90 547,348.71 0.00 0.00 97,564.00 2,526.29 0.00 128,756.00 78,784.12 224,000.00 0.00 84,043.40 33,998.73 6,800.01 40,775.71 3,908.00 91,592.02 0.00 19,315.23 190,463.80 106,666.54 0.00 0.00 2,385,103.40 0.00 0.00 31,407.77 220,718.54 41,541.69 169.00 0.00 0.00 0.00 0.00 512,008.31 0.00 0.00 0.00 0.00 0.00 0.00 0.00 39,084.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 10,966,632.82 10,966,632.82 Exhibit 3 Wuf Plastics Inc. Notes to Financial Statements 1. Due from Related parties and foreign exchange(FX) 2. Taxes Payable at a rate of 15.5% for Income under $500,000 3. Other Revenue: consists of scrap revenue,miscellaneous revenue, fees and new molds. Other Expenses: include building of molds, and general expenses Exhibit 4 Expected Sales: $ Sales Other Revenue June 350,000 $ 75,000 $ July 500,000 $ 50,000 $ August September 425,000 $ 575,000 65,000 $ 75,000 $ Expected Expenses: Increase in Bank Charges Increase in Interest on Long Term Debt Foreign Exchange $ $ $ 2,500 $ 7,500 $ 10,000 $ 3,000 $ 7,500 $ 12,000 $ 1,000 $ 10,000 $ 1,000 $ 10,000 1,500 Assumptions 1. These are increase to the average per month expenses. 2. All other expenses to remain the same based on the average per month
