...2-27 Your new audit client, Hardwood Lumber Company, has a computerized accounting system for all financial statement cycles. During planning, you visited with the information systems vice president and learned that personnel in information systems are assigned to one of four departments: systems programming, applications programming, operations, or data control. Job tasks are specific to the individual and no responsibilities overlap with other departments. Hardwood Lumber relies on the operating system software to restrict online access to individuals. The operating system allows an employee with “READ” capabilities to only view the contents of the program or file. “CHANGE” allows the employee to update the contents of the program or file. “RUN” allows the employee to use a program to process data. Programmers, both systems and applications, are restricted to a READ-only access to all live application software program files but have READ and CHANGE capabilities for test copies of those software program files. Operators have READ and RUN capabilities for live application programs. Data control clerks have CHANGE access to data files only and no access to software program files. The person in charge of operations maintains access to the operating software security features and is responsible for assigning access rights to individuals. The computer room is locked and requires a card-key to access the room. Only operations staff have a card-key to access the room, and security...
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...Fact Pattern: Butler Lumber is a retail distributor located in a growing suburb in the Pacific Northwest that sells basic wood products like plywood, moldings, and sash and door products. The company was formed in 1981 by Mark Butler in partnership with his brother-in-law, who Mark then bought out in 1988. The company has experienced significant growth over the past few years, and is expecting to continue to see sales growth in the coming year. Although the company has experienced increasing sales and claims to be profitable, it has been experiencing a cash shortage and Mark feels that it is going to be necessary to borrow more money in addition to the debt that he has already incurred over the course of the past few years in order to continue business. The bank that Butler has been conducting business with, Suburban National Bank, has a maximum allowable loan value of $250,000. Mark has had a difficult time staying below this debt limit, and only has been able to do so by relying on trade credit. Suburban has also now decided that it will begin requiring Butler to secure any additional debt with real property as collateral. Another larger bank, Northrop National Bank, is a larger establishment and has discussed the possibility with Mark of possibly extending a line of credit to Butler of up to $465,000. Although Mark believes that the $465,000 is more than he will need to borrow, he likes the idea of having the flexibility of the additional cash. Mark is faced with...
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...cost of equity. Then we can calculate the present value of the business. (4) Alternatives to intrinsic value are market value and book value. (5) Why Buffett rejects book value and market value: Book value only reflects the past history of a business’s net asset, it does not mean the business’s future earnings. Market value is not stable, it may be larger or smaller than the intrinsic value greatly. Range of possible intrinsic values for GEICO: 125/(1+ 11%)^5) = 74.18 Why the estimated cost of equity is so high? If we use 30 year Are the Forecast stock prices in 2000 right (from 90 to 120)? (3) Are forecast about dividends of GEICO from 1996 to 2000 right or reasonable? (1)Invest on super companies which have competitive advantage in their industry. (2) Margin of safety: the purchase price is much lower than the intrinsic value. (5) Using Discount-Cash-Flow method to calculate the intrinsic value....
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...Lorman Lumber Company Case Study 2 Lorman Lumber Company is a publicly traded company located in rural Oregon in the town of Yamica on the Mohegan River. The Lorman Lumber Company is a producer of lumber products including plywood, wood studs and wood chips. Chemicals used in the production process include petroleum based creosote and pentachlorophenol (PCP) solutions that are applied to the wood to prevent moisture loss. The sawmill plant is somewhat outdated but is reasonably efficient and profitable. The company has a record of reporting good profits and paying generous performance based bonuses to executives. Ben Watson is an executive with the company and raises his family in the community and is faced with an interesting question. What is more important, his career and family or the Mohegan river and the surrounding area? Recently the Mohegan river has had high readings of industrial chemicals including creosote and PCP solutions. These are the substances that are integral in the production of the lumber that Ben Watson’s company produces. These elevated readings were not included in the monthly reports to management and concerns have been raised by doctors about increases in miscarriages, birth defects and health disorders. Is Lorman Lumber Company effectively dumping chemicals into the Mohegan river? Since the company is adhering to all EPA standards the answer to that question is certainly no, however are chemicals “leaking” or being exposed to the river...
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...Subject: Butler Lumber Company Problem: Butler Lumber Company has been experiencing in the past few years a rapid growth of its sales. However, in order to sustain this growth the company also experienced an increase of its inventory and of its accounts receivables leading to a shortage of cash to finance day to day activities. The company therefore needs to find a way to improve its financial flexibility without extending even more its trade credit. Options: 1. Remain with its current bank, the Suburban National Bank, with a credit limit of $250,000. 2. Take the 90-day note ($465k) from Northrop National Bank and deteriorate relations with Suburban National Bank. a. Benefit from the early payment discount b. Do not benefit from the early payment discount 3. Take a line of credit from Suburban National Bank but for a different amount. Recommendation: Ratio Analysis (compare A/R, A/P turnover rate) Our group recommends that Mr Butler puts an end to his relationship with the Suburban National Bank. Butler Lumber Company needs more financial flexibility in order to sustain its growth and the bank is limiting the maximum loan to $250,000. Therefore, we recommend Mr Butler to start working with Northrop National Bank. Based on our EFN calculations we believe that $465,000 is too much for Butler Lumber Company. Indeed, we have found in our 6 scenarios that the maximum amount that Mr Butler could need would be $392,000. Therefore, we recommend Butler...
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...Clarkson Lumber company Financial Analysis and forcasting Mr. George Dodge, Clarkson Lumber Company is doing well but there is the issue of whether or not there is too high a risk in granting the request for the $750,000 line of credit. There are many supporting strong points but it also has some problems to work out. This is a company that has many good characteristics and looks promising but needs the extra money to pay off loans, inventory, and supplies. I recommend this company to receive the line of credit. Looking at the individual ratios seen in exhibit 1 and comparing it to the industry average shown in exhibit 2 gives a sense of where this company stands. Current ratio and quick ratio are really low and have been decreasing. For 1995, the current ratio is 1.15:1, which is less than the industry average of 1.60:1, however to give a better sense of where this stands in the industry, as seen in exhibit 3, it is actually less than the average of the bottom 25% of the industry. The quick ratio is 0.61 is less than the industry is 0.90. Both these ratios serve to point out the lack of cash in this company. The cash flow has been decreasing because, it takes longer to get the money from customers, but the company still needs to pay for its purchases. Also, the company couldn’t go over the $400,000 loan limit, so they were forced to stretch their cash. Return on sales is decreasing and is below the industry average, but the goods news is that sales and profits have been...
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...Clarkson Lumber Company Problem Analysis: According to Exhibit 1, after computing the net profit margin, we can see that since 1993, the return on sales are 2%, 1.96%, 1.7%, which indicate the first problem. The cost of goods relative to the sales was high which caused the return on sales are too low comparing to the industry level, which also means the costs grew faster than the sales. Secondly, according to Exhibit 2, after computing the days sales outstanding, since 1993, they were 38, 43, 49 which were too high. This may cause bad debt. If DSO can be lower, it can help the company deal with its fund shortage problem. The third problem is that the debt to asset ratio was too high in 1995. After computing according to Exhibit 2, the debt to asset in 1995 was 73%, which raise a red flag, and this will make it relatively costly for the company to borrow additional funds without first raising more equity. The fourth problem is that the return on assets was 4.7% in 1995. This ratio was low comparing to the industry level due to high total assets. Total assets are also inflated due to the liabilities taken in the form of trade credits by Mr. Clarkson. The company was holding too much inventory, which was unproductive and cost lots of storage expense. The fifth problem is that the current ratios from 1993 were too low comparing to the industry level, which indicates the company’s liquidity position is weak....
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...Alabama Atlantic would like to determine the optimal shipping routes for its lumber and the amount to be shipped on each route, in order to minimize the total equivalent uniform annual cost. It is my understanding that the company has three sources of wood, with annual availabilities of 15, 20, and 15 million board feet respectively. Additionally, the company has 5 markets it sells to, which have annual demands of 11, 12, 9, 10, and 8 million board feet respectively. Because the estimated supply and demand of wood is in equilibrium, it is important to meet the full demand in each market. It is also important that total amount shipped does not exceed the available supply. Alabama Atlantic has two possible methods to ship the wood. They can either ship it by train or by ship. Depending on the specific source and market, it can be less costly to use one method over the other. However, it is important to note that using ships may require a large capital investment. I have had a chance to determine the potential shipping plans for Alabama Atlantic and have analyzed the company’s situation. I was able to solve this as a linear programming problem using Microsoft Excel, however some assumptions had to be made. First, the production costs are assumed to be the same at each source, so that the only relevant costs are for shipping. Second, the cost of shipping is assumed to be constant no matter what quantity is...
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...Ozark Furniture Lori Pope MAT221: Introduction to Algebra Instructor: Kemba Chambers December 2, 2013 Ozark Furniture Ozark furniture has 3000 board feet of maple lumber in stock. In order to make classic maple rockers they need 15 board feet of maple lumber. In order to make a modern rocker they need 12 board feet of maple lumber. So we need to process an inequality and graph it in order to be sure that we have enough of the maple lumber in stock to prepare orders. The first step is to define what variables that I will be using in my inequality. So let’s say c = the number of classic maple rockers and let m= the number of modern rockers. Because each of the classic maple rockers require 15 board feet, I will use 15c, and because each modern rocker requires 12 board feet, I will use 12m. Remember I am limited to the amount of maple lumber which is 3000 board feet. My inequality that I will use will look like this: 15c+12m< 3000. Next, we will call c the independent variable on my horizontal axis and m the dependent variable on the vertical axis. By doing this we can graph the equation using the intercepts. The C-intercept is found when m=0 15c< 3000 c< 200 So what we are saying is that the C-intercept is (200, 0) The M-intercept is found when c=0 12< 3000 m< 250 So what we are saying here is that the M-intercept is (0, 250) I will be using a solid line because of the “less than or equal to” inequality...
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...Stella-Jones Inc. is a North American producer and marketer of industrial treated wood products, specializing in the production of railway ties and timbers as well as wood poles supplied to electric utilities and telecommunications companies. The Company also provides treated residential lumber products and customized services to lumber retailers and wholesalers for outdoor applications. Other treated wood products include marine and foundation pilings, construction timbers, highway guardrail posts and treated wood for bridges. The company has treating and pole peeling facilities across Canada and the United States and sells its products primarily in these two countries. The company operates within one business segment, the production and sale of pressure treated wood and related services but has four different markets which are 1. Railway Ties 2.Utility Poles 3.Industrial Products and 4.Residential Lumber. Railway Tie sales are approximately 55% of total sales of the company. Stella-Jones is one of the largest producers in North America. Canadian railways have for many years made the company the leading vendor of this...
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...Ozark Furniture Company Ashford University MAT 221 “Maple rockers. Ozark Furniture Company can obtain at most 3000 board feet of maple lumber for making its classic and modern maple rocking chairs. A classic maple rocker requires 15 board feet of maple, and a modern rocker requires 12 board feet of maple. Write an inequality that limits the possible number of maple rockers of each type that can be made, and graph the inequality in the first quadrant.” Ozark Furniture Company In this paper we will discuss a linear inequality word problem. We will discuss and determine the regions which are safe and unsafe. From there we will know what lies in the safe region and we will produce an understanding of the safe region to solve the linear inequality. The first step is much like any other step; we must attain a understanding of what we are working with. The text states that “Ozark Furniture Company can obtain at most 3,000 board feet of maple lumber for making its classic and modern maple rocking chairs. A maple classic rocker requires 15 board feet of maple, and a maple modern rocker requires 12 board feet of maple. Write an inequality that limits the possible number of maple rockers of each type that can be made, and graph the inequality in the first quadrant.” With the information from the text we can easily make the maple classic rocking chairs as the variable labeled “x” and the maple modern rocking chairs will be labeled as the variable of “y”. Now we must look to...
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...Two Variable Inequalities This week we are challenged to complete 3 steps for the problem 46 located on 240 of our textbook. The steps to completing this assignment are as follows: Assign a variable to each type of rocker that the Ozark Furniture Company makes, write a linear inequality which incorporates the given information of the total board feet and feet required for each type of rocker they make, and draw a graph on paper of the inequality to aid in the writing of the paper. Problem number 46 on page 240 of Elementary and Intermediate Algebra is as follows: “The Ozark Furniture Company can obtain at most 3000 board feet of maple lumber for making its classic and modern maple rocking chairs. A classic maple rocker requires 15 board feet of maple, and a modern rocker requires 12 feet of maple. Write an inequality that limits the possible number of maple rockers of each type that can be made, and graph the inequality in the first quadrant”(Dugopolski,2012). c=classic maple rocker m= modern maple rocker The classic maple rocker, or c, requires 15 board feet of maple so I will use 15c to illustrate. The modern maple rocker, or m, requires 12 board feet of maple so I will illustrate with 12m. The total number of lumber required or obtained to complete both of the modern and classic rockers totals 3000 board feet of maple. The inequality shown: 15c+12m≤3000 In order to graph the equation I will use the following intercepts. The horizontal intercept I will incorporate...
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...The first step is much like any other step; we must attain a understanding of what we are working with. The text states that “Ozark Furniture Company can obtain at most 3,000 board feet of maple lumber for making its classic and modern maple rocking chairs. A maple classic rocker requires 15 board feet of maple, and a maple modern rocker requires 12 board feet of maple. Write an inequality that limits the possible number of maple rockers of each type that can be made, and graph the inequality in the first quadrant.” With the information from the text we can easily make the maple classic rocking chairs as the variable labeled “x” and the maple modern rocking chairs will be labeled as the variable of “y”. Now we must look to see how many materials are needed for each of the builds. It appears that the classic chair requires 15 feet of maple wood so we will use “15x” as the first term of the inequality. Now to look at the modern rocker, this chair requires 12 feet of maple wood. So much like the classic term we will use “12y”. The company is able to use 3,000 feet of board to create chairs so we will use the inequality of 15x + 12y ≤ 3000 where ≤ means using all of the boards which the company can get. From here we will move 15x to the right side the equation using subtraction on both sides which will create 12y ≤ 3000 – 15y. We will not divide the equation by 12 on both sides and simplify which will create y ≤ 250 – (5/4)x. Now we must find the x-intercept. Using y ≤ 250...
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...of high grade lumber products from raw logs received in its yard. Its finished lumber products are sold in an international market that is very price competitive. Treetop relies on a central marketing company, which also represents several of its competitive mills, to market its products. Product packaging and presentation is the one important difference in defining the company’s sales in an international competitive market with little differences in product offerings. Internally the company operations are divided into six operational departments, overseen by one general manager, 16 supervisors and support staff along with 180 unionized employees. Shifts are rotated and maintence employees work a night shift so operations are ongoing 24 hours. The company has seen increased productivity in the departments of planning, sawmill and the department levels of productivity in the boom, shipping, and maintenance departments have remained constant. The one area of decreasing productivity is the packaging department. This is important as the presentation and packaging of product produced is what Treetop Forest Products depends on for sales. Treetop’s marketing agency has instituted a monthly packaging quality award with all its clients it represents to increase package quality, which Treetops packaging department has previously won but now have seen decreases in ratings. Some of Treetops largest client buyers have increasingly switched to competitors lumber saying that the...
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...Butler Lumber Company Case Study 3) Butler Lumber’s profitability is very low. Their net profit margin, return on assets and return on equity are all below 0.1. This means that even with high sales, their net income will not go up very quickly and they may want to look into cutting costs. Their liquidity was good for the previous years, however this year has not started out good. The quick ratio has been in decline every year and is starting to get to a very low number. The days payable outstanding has constantly risen to the point where it is no longer acceptable. The current ratio in 1988 was very good. Since then it has also been in decline. This company cannot continue this trend. Asset management has also seen a decline over the past three years. In 1988, days sales outstanding, asset turnover and inventory turnover were all very strong. With the decline, the total asset turnover has dropped below 1 meaning this company is not selling enough. Meanwhile, debt has consistently increased while the times interest earned has steadily decreased. If these trends continue, this company will go out of business. 4) Mr. Butler must borrow money to support his business because his debt to equity ratio keeps going up. In order to pay for this debt he needs to make sales but his “days sales outstanding” ratio is going up as well. He has a high inventory, so the majority of his expenses go into purchasing more inventories. This would be acceptable if his customers were paying off...
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