Build your IB Business Management SL Finance and Accounts foundation through calculations, accounts interpretation and practical finance decisions.
The sportswear manufacturing industry is becoming more competitive. Some foreign manufacturers have begun using penetration pricing to gain market share. For three years, none of HA’s revenue streams have increased, despite increasing unit sales. HA’s gross and net profit margins have declined. However, its sales have increased for the last three years. HA has had to raise additional external finance to increase production.
Hums Athletics (HA) manufactures running shorts, sweat shirts, and sports bras. Operating only in the secondary sector, HA has a head office and three manufacturing facilities, one for each product. These are located in its home country in Europe. Labour costs are high. The quality of labour is excellent. HA produces goods under its own HA brand, which it sells to wholesalers. HA also manufactures for other sportswear companies. HA puts the other sportswear companies’ logos on the running shorts, sweat shirts, and sports bras. Sales to other sportswear companies are an important revenue stream for HA. HA has many levels of hierarchy. Managers at each level have a narrow span of control, and the company is organized by product. HA’s management believe that these features of organizational structure ensure product quality, which they view as essential for brand loyalty.
Hums Athletics (HA)
Hums Athletics (HA) manufactures running shorts, sweat shirts, and sports bras. Operating only in the secondary sector, HA has a head office and three manufacturing facilities, one for each product. These are located in its home country in Europe. Labour costs are high. The quality of labour is excellent.
HA produces goods under its own HA brand, which it sells to wholesalers. HA also manufactures for other sportswear companies. HA puts the other sportswear companies' logos on the running shorts, sweat shirts, and sports bras. Sales to other sportswear companies are an important revenue stream for HA.
HA has many levels of hierarchy. Managers at each level have a narrow span of control, and the company is organized by product. HA's management believe that these features of organizational structure ensure product quality, which they view as essential for brand loyalty.
The sportswear manufacturing industry is becoming more competitive. Some foreign manufacturers have begun using penetration pricing to gain market share. For three years, none of HA's revenue streams have increased, despite increasing unit sales. HA's gross and net profit margins have declined. However, its sales have increased for the last three years. HA has had to raise additional external finance to increase production.
In response to the increasing competition, HA is considering two options:
- Option 1: Outsourcing some of its manufacturing overseas.
- Option 2: Entering the rapidly growing online business-to-consumer (B2C) retail market.
Market research has shown that consumers increasingly expect to buy online.
Explain:
why HA had to raise additional external finance to increase production.
ELE encourages internal recruitment and promotion when management vacancies arise, seeking employees with ambition, initiative and a belief in change. Internal recruitment can motivate staff, retain organizational knowledge and reduce recruitment risk and cost, but it may limit new ideas and the pool of candidates. ELE originally financed its Zeat takeover with €49 million from internal sources. Suitable internal finance includes retained profit and the sale of surplus assets, although ELE must consider whether enough retained profit exists, the effect on dividends and whether any assets can be sold without harming operations. Retained profits also financed the gasoline-station store refurbishment.
Explain suitable internal sources of finance that ELE could have used to take over Zeat PLC.
Fishers manufactures baseball caps.
70 % of Fishers’s annual sales occur from April to September. Starting in March, Fishers experiences a significant increase in current assets and current liabilities, which start to decrease in October.
Fishers
Fishers manufactures baseball caps. In 2017, it sold 75000 caps. The variable cost per cap was $ 6. 70 % of Fishers's annual sales occur from April to September. Starting in March, Fishers experiences a significant increase in current assets and current liabilities, which start to decrease in October.
Table 1: Selected data for Fishers for 2017 (figures in \$000s)
Table 2: Selected forecasted financial information for Fishers for 2018
Sales price per cap will remain the same as in 2017.
Define the term current assets.
Using Table 1, calculate Fishers's net profit before interest and tax for 2017 (show all your working).
Using Table 2, calculate the following forecasted figures for 2018:
sales revenue;
total variable costs;
income tax;
net profit after interest and tax.
Explain why Fishers experiences a significant increase in current assets and current liabilities from March to October.
Sam created a marketing plan to obtain finance for AFA, a fair-trade retail business. A marketing plan can identify objectives, target markets, marketing mix, budgets and implementation. Sam initially had poor understanding of accounting and finance, so applying appropriate accounting principles and ethics is important for reliable records, correct cash-flow/profit information, tax compliance, honest reporting and stakeholder trust. AFA sells fair-trade chocolate, coffee, clothing and stationery through pop-up stalls, retail outlets and an e-commerce business-to-consumer website.
With reference to A F A, explain why applying appropriate principles and ethics of accounting practice is important.