forecasting financial statements Assignment | Online Assignment

Answer all questions accordinglFor this task, you will practice forecasting financial statements using actual numbers and explain the meaning of the analysis. Prompt: First, review the Module Six resources. Then revisit Chapter 10 in the textbook, which was assigned in Module Three. For this practice activity, we will use the End of Chapter exercise from pp. 703–704: “10.11 Identifying the Cost Structure and Projecting Gross Margins for Capital-Intensive, Cyclical Businesses.” This includes the AK Steel case study. After reading the case study, answer the questions below in the Module Six Activity Worksheet. Refer to the textbook and other course materials to support your responses. A. Cost Structure: Compute the cost structure for each firm. You will need to calculate three variables for both companies: 1. Variable Cost per Dollar of Sales = Change in Cost of Products Sold / Change in Sales 2. Total Variable Cost = Variable Cost per Dollar of Sales * Sales 3. Total Fixed Cost = Total Cost of Product Sold – Total Variable Cost B. Structure of Manufacturing Cost: In one paragraph, compare the structure of manufacturing costs for each firm. C. Projected Financial Information: Compute the projected sales, cost of products sold, gross profit, and gross margin (gross profit as a percentage of sales) of each firm for Year +1 through Year +5. Using the table in the Module Six Activity Worksheet is recommended. D. Gross Margin Comparison: In one to two paragraphs, explain why the levels and variability of the gross margin percentages differ for these two firms for Year +1 through Year +5. Provide an example comparing the effect of the change in gross margin. (For example, if gross margin changed from 25% to 35%, what would it mean for each company?) Rubric Guidelines for Submission: Complete and submit the Module Six Activity Worksheet.

6-2 Forecasting Financial Statements

MBA-520-Q4984

July 7, 2019

First, review the Module Six resources and Chapter 10 in the textbook. For this practice activity, we will use the End of Chapter exercise from pp. 703–704: “10.11 Identifying the Cost Structure and Projecting Gross Margins for Capital-Intensive, Cyclical Businesses.” This includes the AK Steel case study. After reading the case study, answer questions A–D below. Refer to the textbook and other course materials to support your responses.

1. Cost Structure: Calculation of the three variables for both companies below:

AK Steel:

Variable Cost per Dollar of Sales = ($4,554 – $3,887)/($5,217 – $4,042) = $0.568

Total Variable Cost = $0.568 x $5,217 = $2,963 (65% of cost of products sold)

Total Fixed Cost = $4,554 – $2,963 = $1,591 (35% of cost of products sold)

Nucor:

Variable Cost per Dollar of Sales = ($9,129 – $5,997)/($11,377 – $6,266) = $0.613

Total Variable Cost = $0.613 x $11,377 = $6,974 (76% of cost of products sold)

Total Fixed Cost = $9,129 – $6,974 = $2,155 (24% of cost of products sold)

1. Structure of Manufacturing Cost: In one paragraph, compare the structure of manufacturing costs for each firm:

From my observation, when comparing the two steel manufacturers, there are some very clear differences between them with regards to the structure of manufacturing costs for each firm. First AK Steel has a much lower fixed cost and variable cost than Nucor. Additionally, AK Steel also has a lower variable cost per dollar of sales at .568 compared to Nucor’s .613. Nevertheless, AK Steel has much lower sales numbers and significantly lower Gross Profit and Gross Margin % than Nucor. AK Steel is more capital-intensive because they have a higher proportion of fixed costs and a lower proportion of variable costs in its cost structure than Nucor. AK Steel market also offers steel and other products at the higher end which means higher prices and higher gross margins. These two factors illustrate why the lower variable cost as a percentage of sales for AK Steel.

5. Projected Financial Information: Compute the projected sales, cost of products sold, gross profit, and gross margin (gross profit as a percentage of sales) of each firm for Year +1 through Year +5. Using the table below or a similar spreadsheet is recommended.

5. Gross Margin Comparison: In one to two paragraphs, explain why the levels and variability of the gross margin percentages differ for these two firms for Year +1 through Year +5. Provide an example comparing the effect of the change in gross margin. (For example, if gross margin changed from 25% to 35%, what would it mean for each company?)

Looking at AK Steel and Nucor, both companies have a sizable amount of variation in their gross margin percentages both as individual companies year to year and when compared to each other over the same time period. First and most simply, as sales increase the gross margin percentage increased and as sales decreased so too did the gross margin percentage. This base outline was true for both companies Year 1+ through Year 5+. The root of the pattern is that if both sales and gross profits increase from year to year then the company will have an increased gross margin percentage. Seeing that gross margin percentage is the amount that the company retains on each dollar of sales shows that as each company’s percentage increased, they were making more per dollar of sales. When compared to each other Nucor had much higher gross margin percentages than AK Steel. This would dictate that with higher sales and despite higher costs, Nucor was able to retain more money per dollar of sale than AK Steel. For example, in Year 3+ Nucor was able to retain .25 for every dollar of sales which means that the company retained $3942 of their sales in Year 3+, while AK Steel only retained $1533. This difference in favor of Nucor is massive. Ultimately using this same example as the gross margin percentages decreased for both companies in Year 4+ and Year 5+ this means that they retained less money per dollar of sales. In turn, this means that as sales increase with a static fixed cost, then businesses will be able to retain a higher percentage of their sales then when total sales are decreasing.

Overview: For this task, you will practice forecasting financial statements using actual numbers and explain the meaning of the analysis.
Prompt: First, review the Module Six resources. Then revisit Chapter 10 in the textbook, which was assigned in Module Three. For this practice activity, we will use the End of Chapter exercise from pp. 703–704: “10.11 Identifying the Cost Structure and Projecting Gross Margins for Capital-Intensive, Cyclical Businesses.” This includes the AK Steel case study. After reading the case study, answer the questions below in the Module Six Activity Worksheet. Refer to the textbook and other course materials to support your responses.
A. Cost Structure: Compute the cost structure for each firm. You will need to calculate three variables for both companies:
1. Variable Cost per Dollar of Sales = Change in Cost of Products Sold / Change in Sales
2. Total Variable Cost = Variable Cost per Dollar of Sales * Sales
3. Total Fixed Cost = Total Cost of Product Sold – Total Variable Cost
B. Structure of Manufacturing Cost: In one paragraph, compare the structure of manufacturing costs for each firm.
C. Projected Financial Information: Compute the projected sales, cost of products sold, gross profit, and gross margin (gross profit as a percentage of sales) of each firm for Year +1 through Year +5. Using the table in the Module Six Activity Worksheet is recommended.
D. Gross Margin Comparison: In one to two paragraphs, explain why the levels and variability of the gross margin percentages differ for these two firms for Year +1 through Year +5. Provide an example comparing the effect of the change in gross margin. (For example, if gross margin changed from 25% to 35%, what would it mean for each company?)
Rubric
Guidelines for Submission: Complete and submit the Module Six Activity Worksheet.
Critical Elements
Exemplary (100%)
Proficient (90%)
Needs Improvement (70%)
Not Evident (0%)
Value
Cost Structure Calculates the cost structure, including variable cost per dollar of sales, total variable cost, and total fixed cost for each company without any errors
Calculates the cost structure, including variable cost per dollar of sales, total variable cost, and total fixed cost for each company, but there is one calculation error
Calculates the cost structure, including variable cost per dollar of sales, total variable cost, and total fixed cost for each company, but there is more than one calculation error
Does not calculate the cost structure, including variable cost per dollar of sales, total variable cost, and total fixed cost for each company
22.5
Structure of Manufacturing Cost Meets “Proficient” criteria and demonstrates a nuanced understanding of the financial impact of the structure of manufacturing cost
Provides a complete, concise, and accurate analysis of the structure of manufacturing cost for each firm, and analysis is well-supported by information from the course text and resources
Provides an analysis of the structure of manufacturing costs for each firm, but the analysis is not concise, incomplete, or inaccurate, or is not supported by information from the course textbook and resources
Does not provide an analysis of the structure of manufacturing cost for each firm
22.5