STEEVAN'S GPS Manufacturing Company Steevan's.GPS Company is owned and operated by Steexeo. Hardland, Sr. The company has been in operation for several years and manufactures GPS devices. The company has been quite successful over the past years but is experiencing a slow decline in profits for the past couple of quarters, according to reports generated by the administrative staff. A month ago, Mr. Haccland's son, Steekao Hacclande Jr, took a leave of absence from the business to attend law school. Steevan, Jr. served as the Chief Financial Officer for the Company but has only worked in the business for 8 months before leaving. A business manager/accountant was hired part-time to assist the staff in carrying out the accounting and financial duties. The company had been consistently reporting net profits over the years but a decline in profits over the past couple of quarters is quite noticeable. The Hartlands are troubled by this performance and believe they need an expert to review the company's records and operations. Consequently, they have retained your consulting firm to perform research and evaluation and provide recommendations for improvement and recovery of profitable operations. There is also a need for an improved cash flow management strategy Two distinct areas that you are currently investigating are manufacturing operations and cash flow management Details are provided below for both areas. ol PART ONE Manufacturing Operations The newly hired business manager/accountant prepared the following income statement for the 3rd quarter ended September 30, 2020: Steevan's GPS Manufacturing Company Income Statement For the Third Quarter Ended September 30, 2020 $ 2,340,000 Sales Revenue (5,200 devices @ $450/device) Operating Expenses: Raw Material Purchases $ 792,000 Advertising expenses 270,000 Indirect labor 84,000 Direct Labor 570,000 Selling and Admin. Salaries 225,000 Utilities expense 48,000 Rent-Factory Building 180,000 Insurance expense 33,000 Depreciation-Factory Equipment 91,000 Depreciation Sales Equipment 135,000 Total Operating Expenses NET INCOME (LOSS) (2,428,000) SC_88.000) Mr. Hactland, Sr., is greatly disturbed by these reported results. The company had been consistently reporting profit in prior quarters. Consequently, he has asked you to review the income statement and recommend any corrections and adjustments You inquired and obtained the following additional data: A. Inventory Data luly 1 September 30 $48,000 $204,000 Wiadom 1418 words * C Focus Materials Available for Ilse Raw Material 96000 940 of 7 104 NET INCOME (LOSS) $ 88,000) Mr. Harrland, Sr., is greatly disturbed by these reported results. The company had been consistently reporting profit in prior quarters. Consequently, he has asked you to review the income statement and recommend any corrections and adjustments, You inquired and obtained the following additional data: A. Inventory Data July 1 September 30 Raw Material $48,000 $204,000 Work-In-Progress 96,000 84,000 Finished Goods 90,000 288,000 B. Seventy-five percent (75%) of the utility expense and sixty-six and two-thirds percent (66 2/3%) of the insurance expense are to be applied to the factory. The remaining amounts are to be considered selling and administrative expenses. 2 REQUIRED Based on your assessment, the following schedule and financial statement are to be prepared and revised, respectively, in the proper format: 1. A detailed schedule of cost of goods sold for the quarter ended September 30, 2020. 2. A corrected multi-step income statement for the quarter ended September 30, 2020. (See format in Exhibit #1) PART TWO Cash flow and Financing Before leaving, Steexan Hardland, Jr., advised his dad that there also is a need for better forecasting regarding the company's cash inflows and outflows. After a series of questions, you determined that (1) the staff had not prepared a cash budget for several quarters and (2) is not up to date on the company's payables and receivables. You are going to prepare a forecasted income statement and a forecasted cash budget for the fourth quarter. Pertinent information needed has been collected and is outlined below. Pertinent Information: The business manager/accountant and Mr. Haccland, Sr., provided projections pertaining to the 4th quarter (October through December 2020) and other pertinent information outlined below: 1. Total sales 3 quarter: 5,200 GPS devices; Sales price is $450/GPS device 2. Total Sales for the 4th quarter are projected to increase 5% above the 3r quarter total sales due to an aggressive marketing program that began September 1, 2020. Total quarter sales per month are expected to be realized as follows: 25% in October, 35% in November, and 40% in December. The sales budgets expressed in sales dollars and in the number of GPS devices sold are as follows: Oct PROJECTED SALES REVENUE Nov Dec TOTAL QTR SALES $614,250 $859,950 $982,800 $2,457,000 SALES: PRICEX QUANTITY $614,250 $859,950 $982,800 $2,457,000 Quantity of GPS Devices Sold Oct Nov Dec TOTAL QTR Quantity of GPS Devices Sold 1,365 1.911 24184 5,460 3. Monthly Sales are classified as follows and realized in corresponding percentage: a. Cash sales 28% of total sales 3. Monthly Sales are classified as follows and realized in corresponding percentage: a. Cash sales... ..28% of total sales b. Credit sales. ....72% of total sales 4. Monthly credit sales are collected as follows and in the corresponding proportion: a. Collected in the month of the sale, 40% b. Collected one month after the sale month, 35% c. Collected the second month after the sale month, 25% 5. Cost Classifications based on 3 quarter information: Product Costs Fixed Costs Variable Costs $ ? 570,000 Raw Materials Cost of goods sold (See corrected COGS Schedule in Part 1. Required 81) Direct Labor Overhead: Rent-Factory Indirect labor Insurance - Factory (66 2/3%) Utility Factory (75%) Depreciation-factory building $ 180,000 84,000 27,000 22,000 9,000 91.000 Period Costs Advertising expense Selling & Administrative Wages and Salaries Utility-Selling & Administrative (255) Insurance Administrative (331/3%) Depreciation Administrative 90,000 8,400 270,000 135,000 3,600 11,000 135,000 Advertising expense Selling & Administrative Wages and Salaries Utility-Selling & Administrative (25%) Insurance-Administrative (33 1/3%) Depreciation-Administrative 90,000 8,400 270,000 135,000 3,600 11,000 135,000 6. All factory overhead and administrative expenses (except depreciation) are paid in cash in the month the cost is incurred. 7. Direct labor is paid at the end of the month 8. Raw material credit purchases (.e., on account) are paid as follows: 50% in the month of the purchase, 30% the month after the purchase, and 20% in the second month following the purchase. The raw materials' purchases budget is as follows: Oct Nov PROJECTED RAW MATERIAL PURCHASES Dec TOTAL QTR $667,800 NEEDED FOR SALES DESIRED ENDING LESS: BEGINNING PURCHASES $166,950 41,738 (204,000) $4,688 $233,730 58,433 (41,738) $250,425 $267,120 66,780 (58,433) $275,468 $530,580 9. Additional monthly obligation paid in cash include: a. Property taxes, due November 27, $2,790 b. Employee payroll taxes due December 15, $4,500, 5 You will perform the following tasks for the Harrlands: a. Determine the variable cost PER GPS Device for EACH variable cost identified in the table above in #5. b. Prepare a contribution margin income statement for the total 3rd quarter and for the projected total 4th quarter. (Refer to "a" above and the table in #5) C. Prepare a projected traditional multi-step income statement for the 4th quarter. (see Part 1, Required #2 and Exhibit #1) HINT: You will need to prepare a detailed schedule of cost of goods sold for the quarter. Additional information needed is below: Inventory Data: 1-Oct 31-Dec Raw Materials $204,000 $66,780 Work-in-Process 84,000 75,600 Finished Goods 288,000 259,200 d. Prepare a schedule of collections from credit sales for each month of the 4* quarter. Relevant prior months' credit sales: August credit sales, $693,300 September credit sales, $624,000 e Prepare a schedule of payments for raw materials purchased on credit (on account) for each month of the 4th quarter. Relevant prior months' purchases on credit (on account): August purchases on credit (on account), $291,400 September purchases on credit (on account). $265,540 f. Prepare a projected Cash Flow Budget for the 4th quarter. Your budget should include a monthly budget for each of the three months in the quarter. The beginning cash balance on October 1, 2020 is $1,214,000 1418 words