CASE STUDY # 1:STEEL SPECIALTIES HAS BEEN IN BUSINESS FOR 52 YEARS. THE COMPANY MAINTAINS A PERPETUAL?

Muskan K asked:


inventory system, uses a LIFO upsurge assumption, and ends the mercantile year at Dec 31.
At the year end, the price of products sole and register have been practiced to simulate periodic
LIFO costing procedures.
A tyrannise set upon has behind the attainment of purchases systematic during the past several
months of 2001, and Steel Specialties has not been means to feed the inventories as
merchandise is sold. At Dec 22, 2006 one product appears in the company’s
perpetual register annals at the following section costs:
Purchase Date Quantity Unit Cost Total Cost
Nov. 14, 1954 3,000 Rs. 6 Rs. 18,000
Apr. 12, 1955 2,000 8 16,000
Available for sale at Dec. 22,
2001
5,000 Rs. 34,000
Steel Specialties has an one some-more 8,000 units of this product on sequence at the stream wholesale
cost of Rs. thirty per unit. Due to the tyrannise strike, however, these units have not yet
arrived (the conditions of squeeze have been F.O.B. destination). Steel Specialties additionally has been an
order from a patron who wants to squeeze 4,000 units of this product at the retail
sales price of Rs. 45 per unit. Steel Specialties intends to have this sale on Dec 30,
regardless of either the 8,000 units or sequence arrive by this date. (The 4,000 section sale will
be shipped by truck, F.O.B. shipping point.)
Requirements:
a) Are the units in register unequivocally roughly 50 years old? Explain.
b) Prepare a report display the sales revenue, price of products sold, and sum profit
that will outcome from this sale on Dec 30, presumption which the 80,000 units
currently on sequence (1) arrive prior to year ends and (2) do not arrive until some
time in the following year. In each computation, show the series of units
comprising the price of products sole and their associated per section costs.
c) Comment on the formula performed in the partial (b).
d) Management should check this sale by a couple of days or not? Explain the reasons for
your answer.
CASE STUDY # 2:
It is late summer and National Motors, an automobile manufacturer, is confronting a monetary crisis.
A large emanate of holds on credit will grown up subsequent March, and the association contingency issue
stock or brand new holds to lift the income to retire this debt. Unfortunately, enlarge and cash
flows have been disappearing over new years. Management fears which if money flows and
profits do not urge in the stream year, the association will not be means to lift the
capital indispensable to reinstate the sappy bonds. Therefore, members of government have
made the following proposals to urge the money flows and profitability which will be
reported in the monetary statements antiquated this entrance Dec 31, 2003.
1. Switch from the LIFO process to the FIFO process of valuing inventories.
Management estimates which the FIFO process will outcome in the reduce price of goods
sold but in higher income taxes fro the stream year. However, the additional
income taxes will not essentially be paid until early subsequent year.
2. Switch from the 150%-declining –balance process of debasement to the straightline
method and widen the utilitarian lives over which resources have been depreciated. These
changes would be done usually for monetary stating purposes, not for income tax
purposes.
3. Pressure dealers to enlarge their inventories-in short, to buy some-more cars. (The
dealerships have been exclusively owned; to illustrate dealers have been the customers’ to whom
National Motors sells automobiles). Management estimates which this strategy
could enlarge sales for the stream year by 5%. However, any one some-more sales in
the stream year would be roughly wholly equivalent by fewer sales in the following
year.
4. Require dealers to compensate for purchases some-more quickly. Currently, dealers contingency pay
for purchases of autos inside of 60 days. Management is considering. shortening this
period to 30days.
5. Pass up money discounts offering for prompt remuneration (that is 2/10, n/30), and do not
pay any bills until the last due date.
6. Borrow at stream short-term seductiveness rates (about 10%) and make use of the deduction to
pay off long-term debt temperament an seductiveness rate of 13%.
7. Substitute batch dividends for money dividends now paid on collateral stock.
Requirement:
a) Fill in the list since next by indicating, either the on top of 7 proposals will
increase, diminution or have no outcome on captions since in the table.
Proposals Net Income Cash Flow from
Operating activities
Cash
1
2
3
4
5
6
7
b) For each of the 7 proposals, write a short divide explaining the reasoning
behind your answer to partial a.