Question: MINI CASE Scandi Home Furnishings. Need help answering question b of Part A.
Scandi Home Furnishings, Inc. Kaj Rasmussen founded Scandi Home Furnishings as a corporation during mid-2010. Sales during the first full year (2011) of operation reached $1.3 million. Sales increased by 15 percent in 2012 and another 20 percent in 2013. However, after increasing in 2012 over 2011. profits fell sharply in 2013, causing Kaj to wonder what was happening to his pride-and- joy business venture. After al, Kaj worked as closely as possible to a 24/7 pace, beginning with the startup of Scandi and continuing through the first three full years of operation. Scandi Home Furnishings, located in eastern North Carolina, designs, manufactures, and sells Scandinavian-designed furniture and accessories to home furnishings retailers. The modern Scandinavian design has a streamlined and unclut- tered look. While this furniture style is primarily associated with Denmark, both Norwegian and Swedish designers have contributed to the allure of Scandinavian home furnishings. Some say that the inspiration for the Scandinavian design can be traced to the elegant curves of art nouveau from which designers were able to produce aesthetically pleasing. structurally strong modern furniture. Danish furnishings and the home furnishings produced by the ather Scandinavian countries-Sweden, Norway, and Finland--are made using wood (primarily oak, maple, and ashl, alurminium, steel, and high-grade plastics. Kaj grew up in Copenhagen, Denmark, and received an undergraduate degree from a technical university in Sweden. As is typical in Europe, Kaj began his business career as an apprentice at a major home furnishings manufacturer in Copenhagen. After learning the trade, he quickly moved into a management position in the firm. However, after a few years, Kaj realized that what he really wanted to do was to start and operate his own Scandinavian home furnishings business. At the same time, after travelling througlhout the world, he was sure that he wantcd to be an entrepreneur in the United States. Kaj moved to the United States in early 2010. With $140,000 of his personal assets and $210,000 from venture investors, he began operations in mid-2010. Kaj, with a 40 percent ownership interest and industry-related management expertise, was allowed to operate the venture in a way that he thought was best for Scandi. Four years later, Kaj is sure he did the right thing Following are the three years of income statements and balance sheets for Scandi Home Funishings. Kaj felt that that he would need to continue to expand sales to maintain a competitive advantage. After first concentrating on selling Scan- dinavian home furnishings in the Northeast in 2011 and 2012, he decided to enter the West Coast market. An increase in expenses occurred associated with identifying, cong, and selling to home furnishings retailers in California, Oregon and Washington. Kaj Rasmussen hopes that you can help him better understand what has been happening to Scandi Home Furnishings from both operating and financial standpoints. SCANDI HOME FURNISHINGS, INC. 2012 2013 INCOME STATEMENTS Net sales Cost of goods sold 2011 $1,800,000 1260,000 540.000 200,000 200,000 60,000 $1,300,000 80,000 520,000 130,000 150,000 40,000 200,000 45,000 155,000 62,000 S 93,000 1,500,000 900,000 600,000 150,000 150,000 53,000 247,000 57,000 190,000 6,000 114,000 S 74,000 Gross profit Marketing General and administrative Depreciation EBIT Interest 70,000 10,000 4,000 S 6,000 S0 Earnings before taxes Income taxes (40%) Net income Cash Dividends (continued on next page)
