Assignment

Purpose of the Exercise

This case study has three objectives:

1) To demonstrate your skill in building spreadsheets in Excel.
2) To demonstrate your understanding of basic management accounting principles.
3) To facilitate possible future conversations during the recruiting process as a candidate for the position of Senior Business Consultant.

Although most of our consulting time is spent literally turning the business around by changing behavior in the workplace, it is imperative to be able to verify, build and discuss simple financial management reports with Clients on virtually every engagement. In addition, behavior change, and key performance indicators must drive financial return. It is essential to reverse engineer behavior change goals and these goals must be supported by a clear understanding of solid financial information.

Instructions for the Exercises

Follow the directions for each exercise carefully.

o Exercises must be built from scratch (no templates) in MS Excel
o Use one MS Excel document, but a separate tab (sheet) for each exercise
o Place your name at the top of each sheet
o Try your best to format each sheet so that it will print on one page
o Include assumptions you have made and explain pertinent choices for each exercise at the bottom of each sheet.
o Be certain to consider the biographical information in all exercises to help paint a picture of reality.

ABC Company- Biographical Information

ABC Company is a family owned business which Jonathan started 15 years ago, issuing 900 shares of the 1000 authorized, at a par value of $100 a share. ABC Company is a small manufacturer which produces ladies' sports apparel. The business has employed as many as 30 people; however, sales have slipped the last three years, according to Jonathan, due to competition in the marketplace, and the economy.

Currently, the business employs 9 people, including Jonathan and his son, Junior, who is the Plant Manager. The business appears to be on pace to produce about the same as last year, $800,000, which is down from their high of about $2,500,000 just four years ago. Jonathan's family is personally in financial trouble, because Jonathan and Junior aren't taking home the same salary they used to. Three years ago, each of them earned $200K per year. At the time of our arrival, Jonathan hadn't taken any pay for a month, and Junior is being paid at the rate of $50K per year. Jonathan has a few health issues, and wants Junior to take over the business, but can't afford to hire a new Plant Manager.

Morale throughout the company is low, and productivity is suffering.

ABC Company sold 12,307 units last year. 85% of the sales were in workout leggings.

Remaining sales were from one order of sweatshirts by their oldest customer.

They are behind in payables and past due receivables are at an all time high. Their customer base consists mainly of three local retailers who love working with Jonathan and Junior and have been customers for years.

Vendors are getting tired of being paid late, and their primary fabric vendor has just recently put them on COD. There is a loan on the books from Junior's mother-in-law for $30,000, with a pay plan of $750 a month, but the Company has missed the last three payments and Junior and his wife are becoming increasingly upset about the embarrassment and problems this is causing in their family life.

Exercise One - Tab One (portrait page format)

Build a standard, simple Income Statement (P&L). It must show Revenue, Cost of Goods/Direct Costs, and Overhead expenses, along with the standard totals in each section. Include dollar amounts and percentages for each line item. Be careful to choose only P/L appropriate items from the list of "The Numbers" the Client provided.

The Numbers

Accounting Fees 6,000
Accounts Payable 94,300
Accounts Receivable 92,600
Accum Depr - Building 20,000
Accum Depr - Equipment 16,000
Accum Depr - Vehicles 8,000
Advertising 7,500
Additional Paid-in Capital 25,000
Bank Fees 4,450
Building 70,000
Capital Stock 90,000
Cash 36,400
Discounts & Allowances - 21,500
Discounts - Materials -8,520
Dues & Subscriptions 620
Equipment 30,000
Equipment Maintenance 18,690
Franchise 6,500
Freight Out Expense 5,200
Goodwill 10,000
Income Tax 800
Interest Expense 4,000
Investment in JKL Corporation 9,000

Land 9,250
Marketable Securities 8,000
Material Purchases 292,500
Merchandise Inventory 119,000
Motor Vehicles 20,000
Note Payable (due in 6 months) 7,000
Note Payable (due in 2.5 years) 30,000
Notes Receivable 5,000
Office Supplies 6,000
Payroll - Administrative 44,000
Payroll - Direct Labor 202,210
Payroll - Management 50,000
Payroll - Overtime 13,600
Payroll taxes 15,000
Prepaid Expenses 3,000
Rent 30,000
Repairs & Maintenance 21,250
Retained Earnings 119,750
Revenue 821,500
Revenue Received in Advance 2,000
Sales Commissions 40,000
Selling Supplies 2,250

Exercise Two - Tab Two (landscape page format)

Prepare a Six-Week Cash Flow Forecast taking into account the information directly below, the information from the income statement, and the biographical information. This exercise does not have an exact answer, of course. However, there must be positive cash flow each week, and your choices must be reasonable and realistic. You must also show improvements because you are there to improve the business.

AR, AP, and other payments due.

Beginning Checking Account Balance $ 7,000
Average Weekly Sales for the last 3 months $ 6,000
A/R Current $23,600
A/R 30 days $20,000
A/R 60 days $12,000
A/R 90 days $18,000
A/R over 90 $24,000
Payroll is every other week $11,916
Payroll Taxes (due on 15th of every month) $ 1,250
Page 5 of 5

A/P Current $30,000
A/P 30 days $33,000
A/P 60 days $15,000
A/P 90 days $ 6,200
A/P over 90 $9,100
Truck Lease (due on 13th of every month) $ 550
Payment on Building (due 1st of every month) $ 2,500
Equipment Loan (due 22nd of every month) $ 1,350
Accountant Fee (due 1st of every month) $ 1,200
Telephone average (due 20th of every month) $ 650
Utilities average (due 4th of every month) $ 850
Mother-in-Law loan payback (due 5th of every month) $ 750

Exercise Three - Tab Three (portrait page format)

Based on all of the information provided within this case study, please answer the following questions:

1. What are the first 3 things you would address in Sales at ABC Company? Why?
2. What are the first 3 things you would address in Operations? Why?
3. What are the first things you would address in Finance? Why?

Exercise Four - Tab Four (portrait page format)

The following items may require some research on your part. Please utilize information on the internet, books, or other publications/resources to briefly answer the following:

1. How might the concept of the Theory of Constraints (Goldratt) apply to turnaround consulting for ABC Company and Clients like them?

2. Provide 2-3 each of leading metrics (KPIs) for Sales, Ops and Finance for ABC Company

3. What lagging metrics will you measure?

4. How would you use the "I" and the "N" of the SPIN Selling concept as a means of discovery when speaking to Clients and their employees of ABC Company?