-The turnover in an account can be computed based on amounts coming out of that account divided by its average balance. How long on average do raw materials remain in the warehouse before being moved to the production floor?

-Estimate how long on average product remains in process on the production plant floor.

-Estimate how long on average inventory remains in finished goods inventory before it is sold or disposed of (i.e., base your answer on gross finished goods inventory and include all of the inventory leaving finished goods inventory including obsolete inventory disposed of).

-Estimate how long on average elapses between when Steinway purchases raw materials and when it sells or disposes of the final product.

-Based on the preceding including the analysis of accounts receivable in Part I above, and assuming that Steinway takes 35 days on average to pay its accounts payable, how long does it take from when Steinway pays cash to purchase raw materials and when they collect cash from customers?

Assume that an instrument ties up $1,000 on average over the time between when cash is paid to suppliers and when it is collected from customers and that Steinways cost of capital is 8%. Estimate the cost to Steinway of the capital tied up in the average instrument.

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CONSOLIDATED BALANCE SHEETS

(In Thousands Except Share and Per Share Data)

December 31, 2011/ 2012

Assets

Current assets:

Cash 49,888 / 73,406

Accounts receivables, net of allowance for bad debts of

9,083 and 6,353 in 2011 and 2012, respectively 42,322 / 43,536

Inventories 132,401 / 125,081

Prepaid expenses and other current assets 24,010 /14,309

Total current assets 248,621 / 256,332

Property, plant and equipment, net 86,997 / 91,485

Trademarks 13,743 /13,420

Goodwill 22,676 / 22,916

Other assets 37,337 / 41,514

Total assets 409,374 / 425,667

Liabilities and stockholders equity

Current liabilities:

Debt 650 / 576

Accounts payable 10,702 / 12,867

Other current liabilities 38,623 / 40,175

Total current liabilities 49,975 / 53,618

Long-term debt 67,367 / 67,431

Other non-current liabilities 59,439 / 62,773

Total liabilities 176,781 / 183,822

Commitments and contingent liabilities

Stockholders equity:

Ordinary common stock, $.001 par value 14 14

Additional paid-in capital 160,996 162,579

Retained earnings 135,522 / 148,934

Accumulated other comprehensive loss (19,276) / (25,609)

Treasury stock (44,663) / (44,073)

Total stockholders equity 232,593 / 241,845

Total liabilities and stockholders equity 409,374 / 425,667

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CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands Except Share and Per Share Data)

December 31, 2011 2012

Sales 346,256 / 353,717

Cost of sales 241,108 / 239,083

Gross profit 105,148 / 114,634

Operating expenses:

Sales and marketing 43,581 / 45,924

General and administrative 38,921 38,464

Other operating expenses 6,716 / 1,646

Total operating expenses 89,218 / 86,034

Income from operations 15,930 / 28,600

Other expense, net 6,648 / 3,406

Interest income (1,339) / (1,184)

Interest expense 7,037 / 4,835

Total non-operating expenses, net 12,346 / 7,057

Income before income taxes 3,584 / 21,543

Income tax provision 1,954 / 8,033

Net income 1,630 / 13,510

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CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

December 31, 2011 / 2012

Cash flows from operating activities:

Net income 1,630 / 13,510

Adjustments to reconcile net income to cash flows from operating activities:

Depreciation and amortization 8,781 / 9,088

Other 6,421 / 2,916

Changes in operating assets and liabilities, net of effects of businesses acquired:

Accounts, notes and other receivables (41) / (435)

Inventories 9,315 / 2,644

Prepaid expenses and other assets (4,543) / 2,484

Accounts payable (1,400) / 2,159

Other current and non-current liabilities 2,418 / (3,653)

Cash flows from operating activities 22,581 / 28,713

Cash flows from investing activities:

Capital expenditures (6,953) / (7,030)

Proceeds from sales of property, plant and equipment 42 / 206

Payment for acquisitions (3,289) /

Cash flows from investing activities (10,200) / (6,824)

Cash flows from financing activities:

Borrowings under lines of credit 16,607 / 4,500

Repayments under lines of credit (18,470) / (4,500)

Repayments of long-term debt (86,488) /

Proceeds from issuance of common stock 4,911 1,621

Cash flows from financing activities (83,440) / 1,621

Effects of foreign exchange rate changes on cash 1,136 / 8

Increase (decrease) in cash (69,923) / 23,518

Cash, beginning of year 119,811 / 49,888

Cash, end of year 49,888 / 73,406

Supplemental cash flow information:

Interest paid 8,879 / 4,804

Income taxes paid 6,727 / 7,763

footnotes

Inventories:

====================

year 2011 2012

Raw materials 18,242 18,552

work -in-process 33,377 34,923

finished goods 80,782 71,576

132,401 125,081

activity-inventory reserve 2011 2012

beg balance 13.054 12,220

additions charged to expense 1,813 2,412

deductions (2,647) (2,736)

ending balance 12,220 11,896

View comments (2)

Journal entry for 1

The company has written off obsolete inventory in 2012.

The company had a closing balance of 12220 in inventory reserve in 2012.

Journal entry for writing off obsolete stock:

Obsolete stock w/off dr 12220

Inventory reserve cr 12220

(Being Obsolete stock w/off)

2. Cost of sales 241108

Variance in rm stock 310

variance in WIP stock 1546

variance in finished goods (9206)

cost of production 248459

Rm cost 40 %99380

O stock Rm 18552

consumption 99380

c stock - 18242

purchases 99070

Journal entry :

Purchases dr 99070

Accounts payable 99070

wages 40 % of production cost as above 99380

Wages a/c dr 99380

To cash a/c 99380

Finished goods