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SureCut Shears Inc Case Solution
SureCut Shears produces a variety of scissors and shears for both the home and the workplace. Despite stiff competition, mostly from outside, it offers consumers lower prices while still making profits and growing quickly. In the linked spreadsheets, we can observe how its real sales fluctuate over the year. According to the company's current ratio and acid test, its inventory has a significant hold on its available cash. There isn't much hope for the bottom line regarding the profit margin. Excess inventory is a potential danger due to the seasonality of sales. He assumed sales would rise gradually throughout the last half of 2005, so he could pay back the loans. The price and expenses, he reasoned, wouldn't be very much. To a significant extent, his supposition, however, was erroneous. Because of the seasonal nature of sales, he could not accurately foresee the sales recession.
Following questions are answered in this case study solution
What assumption did Mr. Fischer make when he prepared the forecasts shown in case Exhibit 1 and 2? Were these assumptions reasonable?
Why was SureCut Shears unable to repay its bank loan by March 31, 1996, as originally f Please make simple comparison of projected and actual income statement and balanced
Has SureCut's financial condition worsened sufficiently to cause Mr. Stewart any great co Please compare actual and projected financial ratios (See Exhibit S-2)
What are characteristics of SureCut's need for external finance? What is the timing magnitude, and duration of the need? How certain are you of your forecast? Can the need for finance be avoided by deferring expenditures?
Describe SureCut Shears in terms of its market, competitive and operating characteristic. How risky is SureCut in operating and competitive terms?
Would you, as Mr. Stewart, agree to an extension of loan? Under what specific terms and when will SureCut to repay the loan in full?
Case Analysis for SureCut Shears Inc
1. What assumption did Mr. Fischer make when he prepared the forecasts shown in case Exhibit 1 and 2? Were these assumptions reasonable?
The assumptions are laid out below, and they seem to be plausible based on the seasonality of sales.
Net Sales for SureCut Shears are affected by seasonality, which is why there is a noticeable variation. As a result, it's a logical conclusion.
It takes 45 days to collect accounts receivables. Accounts receivables are expected to rise throughout the peak season (September - December). On the surface, this seems logical.
During peak season, there is more inventory and less inventory during non-peak season. This is a valid assumption since a company's ability to sustain sales during peak season is enhanced by having substantial inventory on hand.
Considering the company is a manufacturer, the 60 percent share of net sales accounted for by material and labour expenditures is not out of line.
Manufacturing expenses have decreased by $900,000 because of modernisation. However, this has not been reflected in the company's income statement.
The income statement does not include any interest costs. The interest expenditure on the company's outstanding loan is not included in its income statement, even though it should be.
Expenses for sales and administration are consistent year-round. This can't be constant since sales are a changeable entity; hence, any costs associated with them might also be variable.
A 30-day payment term was anticipated, with a monthly payment rate of $777. As long as you assume that the firm has a steady order of raw materials from its suppliers, there is no major provision to account for any change in price levels paid by the suppliers, and there is no specific calculation to support this
Overhead costs include depreciation. Depreciation costs $130, and overhead costs are $170. A plausible assumption is that the company's overhead will be stable throughout the year due to its consistent output.
2. Why was SureCut Shears unable to repay its bank loan by March 31, 1996, as originally f Please make a simple comparison of the projected and actual income statement and balanced
Because of shifts in customer demand during the year, as well as the severe economic slump that followed, SureCut Shears was unable to make the required loan repayment by the deadline of December 31, 1995. Because of the drop in sales, there was a rise in the total amount of easily available stock. This was a direct consequence of the situation. It was anticipated that there would be no change in production to exercise appropriate inventory control adequately. This was done so that proper control could be properly exercised. This was a necessary step before proceeding with this. It became increasingly difficult to pay the expenses of raw materials and any other expenditures related to production as a direct consequence of the drop in income.
These costs included the cost of labour. Another issue that may have had an influence on the company's liquidity is the increase that occurred during October in expenditures connected to plant, property, and other expenses. The month of October was the one during which these costs were incurred. This increase resulted in an increased sum of money totalling $304,000. Because of the present circumstances, SureCut Shears has been forced to make far more frequent use of the alternatives to long-term loans that it offers in the form of short-term loans than it ever has in the company's history. The company needed a loan from a financial institution in the amount of $500,000 to finish the renovation in September as originally scheduled. This was necessary for them to be able to meet their deadline. This was an inevitable criterion that needed to be satisfied to fulfil the monetary commitments that the current season necessitated. At the end of the year, their inventory had increased by $979,000, but their sales had decreased by $501,000.
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