Figure 3-2: Example Balance Sheet AssetsLiabilities Cash$20,000 Current Liabilities$60,000 Accounts Receivable$35,000 Long-term Debt$30,000 Inventory$15,000Total Liabilities$90,000 Total Current Assets$70,000Shareholders' Equity$60,000 Net Fixed Assets$80,000Total Liabilities and Equity$150,000 Total Assets$150,000
Figure 3-3: Strategic Profit Model 3-18 Sales Cost of Goods Sold Variable Expenses Fixed Expenses Inventory Accounts Receivable Other Current Assets Gross Margin Total Expenses Current Assets Fixed Assets Net Profit Sales Net Profit Margin Sales Total Assets Asset Turnover Return on Assets
Case 3-1 Brant Freezer Co. Located in Fargo, N. Dakota 1-30 Company Facts: Industrial freezers (one size) Product Facts: Market Facts: Distributed through public warehouses in Atlanta, Boston, Chicago, Denver, Los Angels, Portland, and St. Louis Fargo warehouse
Case 3-1 Brant Freezer Co Units ShippedWarehouse Costs 12 mo.5 mo.12 mo.5 mo. Atlanta17,4314,080$156,830$35,890 Boston6,9203,061$63,417$27,915 Chicago28,10414,621$246,315$131,618 Denver3,0211,005*$28,019$8,600* Fargo2,016980$16,411$8,883 LA16,49111,431$151,975$109,690 Portland8,3334,028$73,015$36,021 St. Louis5,9212,331$51,819$23,232 * Denver warehouse closed by strike march 4-19, 2009
Case 3-1 Brant Freezer Co ,010 Units ShippedWarehouse Costs 12 mo.5 mo.12 mo.5 mo. Atlanta18,0007,035$178,000$40,228 Boston7,2003,119$7,300$29,416 Chicago30,00015,230$285,000$141,222 Denver3,1001,421$31,000$14,900 Fargo2,000804$17,000$9,605 LA17,0009,444$176,000$93,280 Portland9,0004,600$85,000$42,616 St. Louis8,0002,116$56,000$19,191
Case 3-1 Brant Freezer Co Income Statement 2009 Sales $ 4,003,450 Cost of Goods Sold $ 937,000 Gross Profit Margin $ 3,066,450 Transportation Cost $ 657,322 Warehousing Cost $ 735,982 Inventory Carrying Cost $ 567,987 Other Operating Costs $ 345,876 Total Operation Costs $ 2,307,167 Earnings before interest and taxes $ 759,283 Interest $ 110,000 Taxes $ 69,000 Ne Income $ 580,283
Case 3-1 Brant Freezer Co Balance Sheet 2009 AssetsLiabilities Cash$706,034 Current Liabilities$1,678,589 Accounts Receivable$355,450 Long-term Debt$398,060 Inventory$1,590,435Total Liabilities$2,076,649 Total Current Assets$2,651,919Shareholders' Equity$1,378,326 Net Fixed Assets$803,056Total Liabilities and Equity$3,454,975 Total Assets$3,454,975
Case 3-1 Brant Freezer Co. Questions 1.When comparing performance during the first five months of 2010 with performance in 2009, which warehouse shows the most improvement? 2.When comparing performance during the first five months of 2010 with performance in 2009, which warehouse shows the poorest change in performance? 3.When comparisons are made among all eight warehouses, which one do you think does the best job for the Brant Company? What criteria did you use? Why?
Case 3-1 Brant Freezer Co. Questions 4.J. Q. is aggressive and is going to recommend that his father cancel the contract with one of the warehouses and give that business to a competing warehouse in the same city. J. Q. feels that when word of this gets around, the other warehouses they use will “shape up.” Which of the seven should J. Q. recommend be dropped? Why? 5.The year 2010 is nearly half over. J. Q. is told to determine how much the firm is likely to spend for warehousing at each of the eight warehouses for the last six months in Do his work for him.
Case 3-1 Brant Freezer Co. Questions 6.When comparing the 2009 figures with the 2010 figures shown in the table, the amount budgeted for each warehouse in 2010 was greater than actual 2009 costs. How much of the increase is caused by increased volume of business (units shipped) and how much by inflation? 7.Use the 2009 income statement and balance sheet to complete a Strategic Profit Model for J. Q. 8.Holding all other information constant, what would be the effect on ROA for 2010 if warehousing costs declined 10 percent from 2009 levels?