Part B

Question No. 01

  1. In order to evaluate the effects of the 2% increase in the selling and administrative expenses i.e. sales commission, it is being analyzed that the EPS is (1.25)comparatively further decreased than calculated by the original values. Also, the profit margin is now (7%) and cash flow from operations are further decreased to $(1230945). In short, by increasing sales commission, the profit margin decreases, EPS decreases and cash flow from operations also decreases by significant amount.
  2. By keeping 3% of the raw material inventory i.e. $4220, it is being analyzed that the cash flow operations have increased to $(375070).The EPS is 1.68 and the profit margin is 9%.
  3. By changing the collection rate i.e. 80% for first quarter, 15% for second quarter and 5% for third quarter, it is being analyzed that the EPS is now 2.04 and profit margin is now 11%, as well as the cash flow from operations is $1220414, which shows that the company would generate positivecash flows over the period of time.
  4. Lastly, the revise price is increased i.e. $6 for muffin, $5.25 for cookies and $5.75 for fresh bread, the EPS is now $2.97, profit margin is 15% and cash flow from operations is $(194472).

Question No. 02

Jeff has been suggesting to Nicole to drop the sales about 10% instead of 20%. He had further said that this would lead to high earnings per share and thus cashflow from business operations. Buns Bakery ought to revise the numbers to show the 10% decrease in sales which has been advised to Jeff by Nicole.

In contrast to the suggestion of Nicole, Jeff has argued that his bonus would then be killed by doing so, Jeff is so much concerned for the first quarter bonus. On the other hand, Jeff has failed in realizing that if they would not obtain finance or money form venturecapitalistcompany, he would then be unable to get his bonus in the near term.

It is significantly important for Jeff to sacrifice immediate gratification in order to allow the company’s growth in the forthcoming years. By revising the numbers, it would reflect the venture capitalist company that for the additional investment, the support is there. It is one of the simplest solution to the problem and it does not reflect a drastic and abrupt change. The preliminary industry studies have been done by Nicole to support this revision and the change would be warranted.

Question No. 03

For the proposed changes, it is being recommended that the collection specialist has to be hired by the company in order to further improve the rate that has been collected in the very first quarter, it is also recommend that the terms should be changed to 15 net 30. It is recommended that the process should be started by summer intern Bob by calling on the accounts that have failed to pay on time. Although, they have no bad debt so if the company has Bob to start laying the ground work for the change might golong way for the purpose of making this a smooth transition (6-tips-to-improve-your-accounts-receivable-collections, 2018)………………….

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