# Project #82714 - P & L control analysis report and financial forecast

IMAN 670 Mini-Case 1
Vega Precision Tracking, LLC
Control Analysis

Profit & Loss Statement
Sales      Actual 1987 % Sales Actual 1988 % Sales \$ Variance % Variance       This is the typical control analysis report that is issued at the end of every month/quarter/year by the
Transponders @ \$3,050    \$     4 209 000 16%  \$     3 660 000 16%  \$     (549 000) -13%       accounting department for the department managers/general managers/vice presidents and CEO to
Radio Direction Finders @ \$24,223  \$     1 695 610 6%  \$     1 332 265 6%  \$     (363 345) -21%       review. In this case you are looking at the annual report and the comparison is the previous year, 1987,
Radar Tracking Systems @ \$189,780  \$   12 905 040 49%  \$    10 437 900 46%  \$  (2 467 140) -19%       and the present year, 1988.
LORAN Tracking Systems @ \$ 79,900  \$     7 590 500 29%  \$     7 430 700 33%  \$     (159 800) -2%
Total Sales        \$   26 400 150 100%  \$    22 860 865 100%  \$  (3 539 285) -13%       Note that in each case the % of sales is calculated along with the \$\$ variance and the %% variance of
1988 compared to 1987.  Why do you we use the %% calculation?? It tells a much greater story then the \$\$
Cost of Goods Sold                               variance. When we use the %% variance a CEO who manages a company like Vega can communicate
Material       \$     8 712 050 33%  \$     8 458 520 37%  \$     (253 529) -3%   12%    with the CEO of a billion dollar corporation.
Labor       \$     3 960 023 15%  \$     3 772 043 17%  \$     (187 980) -5%   10%
Overhead       \$     5 808 033 22%  \$     5 600 912 25%  \$     (207 121) -4%   11%    The most important number on the P&L statement (a history of the last month/quarter/year) is the gross margin.
Total COGS       \$   18 480 105    \$    17 831 475    \$     (648 630) -4%   #Ð—ÐÐÐ§!    The GM is the amount of money you have left after you have paid for the labor, material, and factory overhead, which is called the Cost of Goods Sold. The Cost of Goods sold is the perfect description--the cost of the goods
that you sold/invoiced during the historical period. The GM% of sales probably tells the best story. In the
Gross Proft Margin       \$     7 920 045 30,0%  \$     5 029 390 22,0%  \$  (2 890 655) -36%   -27%    manufacturing industries the gross margins will typically range from 30% to 40-45%. If you score above 40% gross
margin, then you have an innovative product and you are driving the costs (cost of goods sold) down on a
continual basis. Remember what Knight stated as a tenet of Emerson Electric--'drive down costs in good times
Expenses                                 and in bad times'. That has to be the religion/doctrine that is preached in successful companies daily.
International Sales Commissions     \$        135 000 1%  \$          95 000 0%  \$       (40 000) -30%   -19%
Sales & Marketing       \$     1 800 000 7%  \$     1 875 000 8%  \$        75 000 4%   20%    Analyze what is taking place in each year with each cost category. The written report that you prepare should
Delivery Costs       \$          50 000 0%  \$          58 000 0%  \$         8 000 16%
R & D       \$     1 470 000 6%  \$     1 150 000 5%  \$     (320 000) -22%   -10%     compare each  year to the prevoius year, from 1987-1989. Pick out the categories with the significant variances
General & Administrative     \$     3 405 000 13%  \$     3 120 000 14%  \$     (285 000) -8%   6%    and comment on these as to what caused the variances, and what you will do in the next year to bring the
\$                -                        variances in line so that you have a more acceptable gross margin and pre-tax profit.
Total Expenses       \$     6 860 000 26,0%  \$     6 298 000 28%  \$     (562 000) -8%
Start with 1987 and compare the results against a fictitious budget. Let's say Sales of \$29m, a 34% gross margin,
EBIDA (Operating Income)     \$     1 060 045 4,0%  \$    (1 268 610) -6%  \$  (2 328 655) -220%       Total Expenses of 23%, and the resultilng EBIDA (Earnings before interest, depreciation and amortization) and
Net Income (after interest expenses and depreciation). Choose your own budget parameters. There is no right or
Interest Expense       \$        100 000 0%  \$        100 000 0%  \$              -   0%
Depreciation       \$        240 000 1%  \$        240 000 1%  \$              -   0%        So, your report for 1988 should compare the results against 1987. Comment on the results by main category--
Amortization of Goodwill      \$                -   0%  \$                 -   0%  \$              -   #Ð”Ð•Ð›/0!       such as Sales, etc. Do this for 1989 compared to 1988.  In the 1989 report you should
also have an 'Action Plan' in the 1989 report as what changes you will make in 1990, so that you are hopefully managing a
Net Income       \$        720 045 2,7%  \$    (1 608 610) -7,0%  \$  (2 328 655) -323%       profitable company with a positive cash flow. In the 1990 report analyze the variances compared to 1989, have an 'Action Plan' for
1991 and add a section titled 'Look Back', which will comment on whether you achieved or missed your budgt.  I do not expect
you to go into a lot of detail, and I know that most of you are unfamilar with the manufacturing industry. Read the lectures,
Other Major Control Items                            the readings on Knight and Emerson Electric. I consider Knight as the ideal executive, so take the readings serioiusly, and
Cash                           refer to them throughout the semester. I shall.
Accounts Receivable       \$     4 701 397
Inventory       \$     5 775 033                 Complete the Other Major Control Item for 1987-1988, 1988-1989, 1989-1990, and 1990=1991
Current Assets       \$   10 939 675
Accounts Payable       \$     2 379 630                  The Report should not exceed 2 pages for each two year period. Submit the complete spread sheet and Control Analysis
Dividends       \$                -                    separately from the written report in the assignment folder. Do not wait until the weekend before the work is due to get underway.Everything will be be in the
Current Liabilities       \$     2 379 630                  This is all new to you and should be absorbed over a three week period.
Fixed Assets       \$     2 400 000
Net Working Capital       \$     8 560 045                 The written report is just as important as the spread sheet. It is through the written report that you will convey ideas/thoughts/recommendations to your
Account Receivable Days    65                  boss in the real world. You must be able to write. The spread sheet is the written report expressed in numbers.
Inventory Days      114
Inventory Turns      3,2                 Let me know if you need any assistance. I am attaching a sample written report in Week #2. Use it as a format.
Account Payable Days      47
Quick Ratio                        What I have done in this column is to calculate the %% change of the %% change for each item. For instance, with
Current Ratio      4,6                 the labor we know that the %% of labor/sales \$\$ for 1987 is 15%,and by 1989 it has increased to 18% of the sales \$\$.
Earnings per share       \$             0,72                 In order to get a feel for the magnitude of the variance, I like to calculate the %% change between the labor figures.
Return on Sales      2,73%                 For labor the change between 15% and 18% is 20%--(15-18)/15==20%. That is a significant variance, and is another
Return on Assets      5,60%                 figure that you can use in your report. Gets the magnitude of the lack of supervision to the forefront--and all of this

 IMAN 670 Mini-Case 1 Vega Precision Tracking, LLC Control Analysis Profit & Loss Statement Sales Actual 1988 % Sales Actual 1989 % Sales \$ Variance Transponders @ \$3,050 \$    3 660 000 16% \$    3 355 000 17% \$    (305 000) Radio Direction Finders @ \$24,223 \$    1 332 265 6% \$      968 920 5% \$    (363 345) Radar Tracking Systems @ \$189,780 \$  10 437 900 46% \$    8 919 660 46% \$ (1 518 240) LORAN Tracking Systems @ \$ 79,900 \$    7 430 700 33% \$    6 232 200 32% \$ (1 198 500) Total Sales \$  22 860 865 100% \$  19 475 780 100% \$ (3 385 085) Cost of Goods Sold Material \$    8 458 520 37% \$    7 400 796 38% \$ (1 057 724) Labor \$    3 772 043 17% \$    3 505 640 18% \$    (266 402) Overhead \$    5 600 912 25% \$    5 355 840 28% \$    (245 072) Total COGS \$  17 831 475 \$  16 262 276 \$ (1 569 198) Gross Proft Margin \$    5 029 390 22,0% \$    3 213 504 16,5% \$ (1 815 887) Expenses International Sales Commissions \$        95 000 0% \$        20 000 0% \$     (75 000) Sales & Marketing \$    1 875 000 8% \$    1 950 000 10% \$      75 000 Delivery Costs \$        58 000 0% \$        67 000 0% \$        9 000 R & D \$    1 150 000 5% \$      922 000 5% \$    (228 000) General & Administrative \$    3 120 000 14% \$    2 892 000 15% \$    (228 000) Total Expenses \$    6 298 000 27,5% \$    5 851 000 30% \$    (447 000) EBIDA (Operating Income) \$   (1 268 610) -5,5% \$   (2 637 496) -14% \$ (1 368 887) Interest Expense \$       100 000 0% \$      100 000 1% \$             - Depreciation \$       240 000 1% \$      240 000 1% \$             - Amortization of Goodwill \$               - 0% \$               - 0% \$             - Net Income \$   (1 608 610) -7,0% \$   (2 977 496) -15,3% \$ (1 368 887) Other Major Control Items Cash Accounts Receivable \$               - Inventory \$               - Current Assets \$               - Accounts Payable \$               - Dividends \$               - Current Liabilities \$               - Fixed Assets \$               - Net Working Capital \$               - Account Receivable Days 0 Inventory Days 0 Inventory Turns 0,0 Account Payable Days 0 Quick Ratio Current Ratio 0,0 Earnings per share \$               - Return on Sales 0,00% Return on Assets 0,00%
while the sales have decreased 26% over the three year period. See the information that you can get when you

IMAN 670 Mini-Case 1
Vega Precision Tracking, LLC
Control Analysis

Profit & Loss Statement
Sales      Actual 1989 % Sales Actual 1990 % Sales \$ Variance % Variance
Transponders @ \$3,050  \$   3 355 000 17%  \$                -   #Ð”Ð•Ð›/0!  \$   (3 355 000) -100%
Radio Direction Finders @ \$24,223  \$      968 920 5%  \$                -   #Ð”Ð•Ð›/0!  \$      (968 920) -100%
Radar Tracking Systems @ \$189,780  \$   8 919 660 46%  \$                -   #Ð”Ð•Ð›/0!  \$   (8 919 660) -100%
LORAN Tracking Systems @ \$ 79,900  \$   6 232 200 32%  \$                -   #Ð”Ð•Ð›/0!  \$   (6 232 200) -100%
Total Sales      \$ 19 475 780 100%  \$                -   #Ð”Ð•Ð›/0!  \$ (19 475 780) -100%

Cost of Goods Sold
Material       \$   7 400 796 38%  \$                -   #Ð”Ð•Ð›/0!  \$   (7 400 796) -100%
Labor       \$   3 505 640 18%  \$                -   #Ð”Ð•Ð›/0!  \$   (3 505 640) -100%
Overhead     \$   5 355 840 28%  \$                -   #Ð”Ð•Ð›/0!  \$   (5 355 840) -100%
Total COGS     \$ 16 262 276    \$                -      \$ (16 262 276)

Gross Proft Margin     \$   3 213 504 16,5%  \$                -   #Ð”Ð•Ð›/0!  \$   (3 213 504) -100%

Expenses
International Sales Commissions   \$        20 000 0%  \$                -   #Ð”Ð•Ð›/0!  \$        (20 000) -100%
Sales & Marketing     \$   1 950 000 10%  \$                -   #Ð”Ð•Ð›/0!  \$   (1 950 000) -100%
Delivery Costs     \$        67 000 0%  \$                -   #Ð”Ð•Ð›/0!  \$        (67 000) -100%
R & D       \$      922 000 5%  \$                -   #Ð”Ð•Ð›/0!  \$      (922 000) -100%
General & Administrative   \$   2 892 000 15%  \$                -   #Ð”Ð•Ð›/0!  \$   (2 892 000) -100%

Total Expenses     \$   5 851 000 30,0%  \$                -   #Ð”Ð•Ð›/0!  \$   (5 851 000) -100%

EBIDA (Operating Income)   \$  (2 637 496) -13,5%  \$                -   #Ð”Ð•Ð›/0!  \$    2 637 496 -100%

Interest Expense     \$      100 000 1%  \$       100 000 #Ð”Ð•Ð›/0!  \$               -   0%
Depreciation     \$      240 000 1%  \$       240 000 #Ð”Ð•Ð›/0!  \$               -   0%
Amortization of Goodwill  \$              -   0%  \$                -   #Ð”Ð•Ð›/0!  \$               -   #Ð”Ð•Ð›/0!

Net Income     \$  (2 977 496) -15,3%  \$      (340 000) #Ð”Ð•Ð›/0!  \$    2 637 496 -89%

Other Major Control Items
Cash
Accounts Receivable     \$              -
Inventory       \$              -
Current Assets     \$              -
Accounts Payable     \$              -
Dividends       \$              -
Current Liabilities     \$              -
Fixed Assets     \$              -
Net Working Capital     \$              -
Account Receivable Days  0
Inventory Days    0
Inventory Turns    0,0
Account Payable Days  0
Quick Ratio
Current Ratio    0,0
Earnings per share     \$              -
Return on Sales    0,00%
Return on Assets    0,00%

 IMAN 670 Mini-Case 1 Vega Precision Tracking, LLC Control Analysis Profit & Loss Statement Sales Actual 1990 % Sales Actual 1991 % Sales \$ Variance % Variance Transponders @ \$3,050 \$             - #Ð”Ð•Ð›/0! \$               - #Ð”Ð•Ð›/0! \$             - #Ð”Ð•Ð›/0! Radio Direction Finders @ \$24,223 \$             - #Ð”Ð•Ð›/0! \$               - #Ð”Ð•Ð›/0! \$             - #Ð”Ð•Ð›/0! Radar Tracking Systems @ \$189,780 \$             - #Ð”Ð•Ð›/0! \$               - #Ð”Ð•Ð›/0! \$             - #Ð”Ð•Ð›/0! LORAN Tracking Systems @ \$ 79,900 \$             - #Ð”Ð•Ð›/0! \$               - #Ð”Ð•Ð›/0! \$             - #Ð”Ð•Ð›/0! Total Sales \$             - #Ð”Ð•Ð›/0! \$               - #Ð”Ð•Ð›/0! \$             - #Ð”Ð•Ð›/0! Cost of Goods Sold Material \$             - #Ð”Ð•Ð›/0! \$               - #Ð”Ð•Ð›/0! \$             - #Ð”Ð•Ð›/0! Labor \$             - #Ð”Ð•Ð›/0! \$               - #Ð”Ð•Ð›/0! \$             - #Ð”Ð•Ð›/0! Overhead \$             - #Ð”Ð•Ð›/0! \$               - #Ð”Ð•Ð›/0! \$             - #Ð”Ð•Ð›/0! Total COGS \$             - \$               - \$             - #Ð”Ð•Ð›/0! Gross Proft Margin \$             - #Ð”Ð•Ð›/0! \$               - #Ð”Ð•Ð›/0! \$             - #Ð”Ð•Ð›/0! Expenses International Sales Commissions \$             - #Ð”Ð•Ð›/0! \$               - #Ð”Ð•Ð›/0! \$             - #Ð”Ð•Ð›/0! Sales & Marketing \$             - #Ð”Ð•Ð›/0! \$               - #Ð”Ð•Ð›/0! \$             - #Ð”Ð•Ð›/0! Delivery Costs \$             - #Ð”Ð•Ð›/0! \$               - #Ð”Ð•Ð›/0! \$             - #Ð”Ð•Ð›/0! R & D \$             - #Ð”Ð•Ð›/0! \$               - #Ð”Ð•Ð›/0! \$             - #Ð”Ð•Ð›/0! General & Administrative \$             - #Ð”Ð•Ð›/0! \$               - #Ð”Ð•Ð›/0! \$             - #Ð”Ð•Ð›/0! Total Expenses \$             - #Ð”Ð•Ð›/0! \$               - #Ð”Ð•Ð›/0! \$             - #Ð”Ð•Ð›/0! EBIDA (Operating Income) \$             - #Ð”Ð•Ð›/0! \$               - #Ð”Ð•Ð›/0! \$             - #Ð”Ð•Ð›/0! Interest Expense \$     100 000 #Ð”Ð•Ð›/0! \$      100 000 #Ð”Ð•Ð›/0! \$             - #Ð”Ð•Ð›/0! Depreciation \$     240 000 #Ð”Ð•Ð›/0! \$      240 000 #Ð”Ð•Ð›/0! \$             - #Ð”Ð•Ð›/0! Amortization of Goodwill \$             - #Ð”Ð•Ð›/0! \$               - #Ð”Ð•Ð›/0! \$             - #Ð”Ð•Ð›/0! Net Income \$    (340 000) #Ð”Ð•Ð›/0! \$     (340 000) #Ð”Ð•Ð›/0! \$             - #Ð”Ð•Ð›/0! \$               - \$               - Other Major Control Items Cash Accounts Receivable \$  4 701 397 Inventory \$  5 775 033 Current Assets \$10 939 675 Accounts Payable \$  2 379 630 Dividends \$             - Current Liabilities \$  2 379 630 Fixed Assets \$  2 400 000 Net Working Capital \$  8 560 045 Account Receivable Days 65 Inventory Days 114 Inventory Turns 3,2 Account Payable Days 47 Quick Ratio Current Ratio 4,6 Earnings per share \$         (0,34) Return on Sales 2,73% Return on Assets -2,64%

use %% to analyze the data????
Note the the %% point change between 15% and 18% is 3 percentage points. Means absolutely nothing and do not get confused

 Subject Business Due By (Pacific Time) 09/20/2015 12:00 am
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