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You asked: "Ken Martin, cofounder and chief strat...

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You asked: "Ken Martin, cofounder and chief strategist, is equally concerned about the company, but he believes that specialty food shops that sell the company?s products expect to be able to order items from Colt Kitchen and have them shipped immediately. In short, Ken thinks that maintaining an adequate inventory is crucial to the company?s future. Sharon and Ken have set a meeting for late next week to decide on the company?s adoption of a just-in-time inventory management system. Sharon is proposing that inventory be reduced by 80 percent and that warehouse employment be decreased by 30 percent. Currently, the 10 warehouse employees earn an average gross pay of $350 per week. Spices $28,0004 Coffee and tea 61,060 Pasta 32,140 Vegetables 108,460 Health Supplements 84,700 Dairy 46,975 Meats 185,610 Personal products 71,440 Household 88,200 Pet care 15,920 A. Assume that Colt Kitchen can invest cash that would otherwise be ?tied up? in inventory. Calculate the potential interest income if the company were to receive an annual interest rate of 3.5 percent on the cash that would otherwise be invested in the inventory (represented by the 80 percent reduction). B. Although annual sales are currently $3.8 million, Ken believes that adopting a just-in-time system will ultimately cause problems such that customers will turn to other wholesalers for their needs. Ken is estimating lost revenues of 20 percent. If the company?s gross profit is 30 percent of sales, what impact will the lost revenues have on the company?s income statement? " - Sent to Accounting Expert Tutor on 12/1/2010 at 12:23am The Expert Tutor on Course Hero answered: We need you to clarify your question for our tutors! Clarification request: Dear Student, Please increase the deadline of your assignment relevant with the complexity of your assignment so that it could be evaluated. Thank you. Please resubmit your questions below.,This is the what I would like to confirm. Note correction on Spices is 28,000 A. Calculate the potential interest income if the company were to receive an annual interest rate of 3.5 percent on the cash that would otherwise be invested in the inventory (represented by the 80 percent reduction. Total net inventory $722,505 Reduction at 80% 578,004 Potential interest income @ 3.5 percent $578,004 = $2,023,014. B. Although annual sales are currently $3.8 million, Ken believes that adopting a just-in-time system will ultimately cause problems such that customers will turn to other wholesalers for their needs. Ken is estimating lost revenues of 20 percent. If the company?s gross profit is 30 percent of sales, what impact will the lost revenues have on the company?s income statement? Annual sales $3,800,000 Lost revenues of 20% = $760,000 ($3,800,000 x 20%) Gross profit @30 percent $1,140,000 ($3,800,000 x 30%) New sales revenue = $3,040,000 ($3,800,000 - $760,000) Gross profit of new sales revenue @30 percent $912,000 ($3,040,000 x 30%) New net income will be lower by $228,000

 

Paper#9673 | Written in 18-Jul-2015

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