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Prepare a 100 to 200 -word portion of the financial report for the CEO containing




Question;Calculate the following year-end ratios for the pro forma;statements along with2011;Prepare a 100 to 200;-word portion of the financial report for the CEO containing;?;the Profit as a percentage of sales, and;?;an explanation of how;you reached the calculations.;?;Explain which income;statement and balance sheet items you assumed were variable instead of fixed.;?;Also include your;assumptions used in determining your numbers.;Memo;To: All Senior Staff;From: Kristen Huffman, CEO & President;Re: New Strategic Direction;Thank you for attending our annual strategic planning;session. Given recent changes in the economy and;customer needs, a new direction for our company is;necessary. After reviewing how other companies;restructured themselves in recent years, we will mirror how;UPS? conducts business as a;partner/consultant with large customers. For our company;however, we will go a step further and become a;warehousing/local just-in-time (JIT) delivery source;instead of providing logistics advice to clients, as UPS?;does.;To accomplish this, we must integrate this new direction;into our upcoming strategic plan and financial;planning. First, I need all department managers to prepare;their budgets.;I would also like our accounting department to move ahead on;a preliminary set of pro forma statements;even without final budgets, using the following assumptions.;They must determine if external funding is;needed.;I have attached a summary of assumptions about this new;direction.New Strategic Direction;? Page 2;1. Assume inflation of 4% on expenses, not including;depreciation and taxes. This is in addition to the;new initiative?s costs.;New Strategic Initiative Assumptions;Huffman may overcome increased competition and economic;slowdown by initiating a new strategy, this;will turn our company into a one-stop shop and key logistics;company. We will provide consulting services;generate revenues, and become a JIT warehouse/delivery;source. A local retailer selling products from a;distant manufacturing plant, for example, may accept JIT;deliveries, instead of 40-foot trailer loads. This;would be fulfilled by the local operation.;2. Assume the following regarding variables versus;fixed-nature-of-income-statement operating;expenses for the existing business;a. 80% of wage benefits is variable and 20% is fixed.;b. 100% of fuel expenses, purchased transportation, and;operating supplies is variable.;c. 100% of operating taxes is fixed.;d. 20% of insurance and claims is fixed, the balance is;variable.;e. Assume depreciation, even with new expenditures, is fixed;as the retirement of written-off;assets, equaling new equipment.;3. There will be new spending areas reflected on future;budgets to reflect added satellite warehouse;costs and space rental and costs of running the locations.;a. In the first year, add $10 million of inflation, space;rental, and operating costs at 25% of;revenues from the new initiative.;b. In the second year, add $10 million space rental, with;inflation at the same variable percentage;of sales.;c. In the third year, add $7.5 million of the variable;percentage of sales.;4. In marketing, budget accounts have been added for new;incurred costs. We will continue our;present promotion and launch a new program, with the;assistance of our marketing partner, the ABC;Marketing Agency. They will advise us on the type;frequency, and content of new messages.;Assume 100% of the existing budget is fixed with respect to;volume along with new expenses. We;expect incremental expenses, with $5 million of inflation in;the first three years.;5. Our existing sales force, comprised of four national;account managers, will call on clients such as;Wal-Mart?, Sears?, and Best Buy?. Existing expenses are;assumed to be 100% fixed in relation to;revenue. To tap into specialized markets, our strategy is;aimed at adding four industry-specific;managers, each with a salary base of $50,000 and 2%;commission of generated revenues.;6. The human resources budget will not change substantially;aside from added hiring, recruiting;training, and drug testing fees. Assume 10% of expenses is;fixed, the balance is variable with;volume.New Strategic Direction;? Page 3;7. Assume current assets and liabilities are variable.;Expect an addition of $10 million to operating;property, spent in the first year. Our payment to vendors;suppliers, and taxes will be in thirty-day;terms. We expect all payments to be in sixty-day terms.;8. Assume revenue growth from our existing business will;grow at 8% versus 10% in past years. Our;new strategy, however, adds incremental consulting revenues;of $3.5, $4.5, and $6.5 million in the;first, second, and third years. New warehousing will add;revenue of $10, $30, and $40 million in the;first, second, and third years. All new revenue will be;subject to commissions for industry-specific;managers.


Paper#48511 | Written in 18-Jul-2015

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