Laramie Wire Manufacturing Case

This then translates to a 50% chance of not having inventory available during job opportunities. Therefore, opportunity costs might occur. The indifference of the production managers' in these aspects of inventory control is alarming and should be acted upon.

The objective of analytical procedures is to identify the existence of unusual transactions and events, and amounts, ratios and trends that might indicate matters that have financial statement and audit planning ramifications*. First, the auditors should consider information regarding the industry in which the client operates**. In this case, average machine setup time from start to finish is approximately six hours, which is slightly below the industry average. It means the company is efficient in preparation for production. Also, the auditors should compare client data with prior period data***. For example, days sales in receivables increased from 48.4 days (2004) to 56.3 days (2005). Though sales didn't increase a lot ,but days sales

In the past few years, they have experienced a significant increase in inventory days. Not having attractive inventory leads to a decrease in sales and an increase in discounts and write offs leading to further decreases in EBITDA Margins. In 2009, the inventory turnover took 215 days. This is significantly above Le Chateaus competitors, for example Reitman’s inventory took only 72 days (Annual Report 2010). This means it takes Le Chateaus three times as long to sell inventory compared to their competitors. To make matters worse, this trend has been exacerbated in recent years. Le Chateau’s turnover has ballooned to a staggering 341 days while Reitman’s has kept inventory turnover stable at only 76 days.

The company is looking to increase profitability and find a long-term solution to the inventory problem.

Cost of inventory is determined using the average method; inventory is stated at the lower of cost or market. +pB13

330-10-30330-10-30-1 The primary basis of accounting for inventories is cost, which has been defined generally as the price paid or consideration given to acquire an asset. As applied to inventories, cost means in principle the sum of the applicable expenditures and charges directly or indirectly incurred in bringing an article to its existing condition and location. It is understood to mean acquisition and production cost, and its determination involves many considerations. 330-10-30330-10-30-2 Although principles for the determination of inventory costs may be easily stated, their application, particularly to such inventory items as work in process and finished goods, is difficult because of the variety of considerations in the allocation of costs and charges.

The decline of inventory turnover presents the incresed possibility of inventory obsolescence which is likely to be assessed as higher business risk. In debts to equity part, the ratio in current year is much higher than that of preceeding year, which means the extent of use of debt in financing company is much higher than before. Pinnacle has used most of its borrowing capacity and has little cushion for addional debt.This action brought high business risk to Pinnacle. In addition, Pinnacle puchase more inventory in current year that that of preceeding year, and net sales are increasing also compared previous year. However, the net income is decreased significantly. These changes show expenses (maybe direct or indirect) have increased dramaticly. The company uses more expensive materials and labors to manufacure and sell products.

2.2 Inventories (AASB 1019) as a general principle, inventories are valued at the lower of cost (including fixed and variable factory overheads where applicable) and net realizable value. Cost is determined on the basis of first-in-first-out, average or standard, whichever is the most appropriate in each case.

Improve inventory days. This is part of Horniman’s business; it is unclear whether the inventory can be improved, particularly if they are moving to more-mature plants. The analysis to make this trade-off is similar to that of the payables policy. One would divide the expected margin gain by the increase in inventory levels to compute a marginal return on capital. One additional level of concern is the substantial additional risk associated with increasing inventory when facing uncertainty with respect to the effects of interest rates and adverse weather.

b. The inventory write down recorded, as an expense by the company is $4.4 million. It is measured at lower of cost and net realizable value. Cost is measured by weighted average using standard cost method or

Because the product was leaving the warehouse and getting to stores quicker, I was able to reduce the storage space which was an initial problem so the increase of costs because of it decreased. The stores showed a moderate increase in profit.

With this company the inventory management ratios further indicate that there may be an issue with inventory and inventory controls. The inventory turnover ratio is lower than the industry average and the days’ sales in inventory are high. A company wants to turn inventory quickly to reduce storage costs, and

Support: The inventory increase in 1997, YOY, was 58%. Additionally, the COGS to revenue ratio reduced from to 72% in 1997. This combination of increase in inventory and reduction in COGS as a percentage of revenue seems to indicate that the fixed costs may have been spread over a larger base through over production, thereby causing the COGS to reduce. This may be a cause for concern and could be a potential red flag.

Milligan’s Backyard Storage Kits, a mail order company, sells a variety of backyard storage unit kits and landscaping decorations to its customers. Although the company makes a profit, David Milligan, the company’s owner, realizes that he can improve his company’s operations if he better manages his inventory. Mr. Milligan requests your help in preparing an Inventory Analysis worksheet. The Inventory Analysis worksheet provides Mr. Milligan with information about his annual sales, cost of goods sold, gross profit, and markup on this products. Preparing the worksheet for Mr. Milligan requires you to insert columns, use several functions, and apply proper formatting to the