Unit 5 Assignment-You were recently hired by E&T Boats, Inc. to assist the company with its financial planning and to

Unit 5 Assignment
You were recently hired by E&T
Boats, Inc. to assist the company with its financial planning and to evaluate
the company’s performance. E&T
Boats, Inc. builds and sells boats to order, which they can build in less than
five weeks from start to finish. E&T
sell 5 different types of boats ranging in price and cost.
You have been given the following financial
information for E&T Boats, Inc.:
E&T
Boats, Inc.
2011
Income Statement

Sales $13,780,000
Cost
of goods sold 8,080,000
Other
expenses 1,540,000
Depreciation 440,000
Interest 231,500
Net
income $3,488,500

E&T Boats, Inc.
2011 Balance Statement

Asset:
Liabilities and Equity
Current
assets
Current Liabilities
Cash $
254,000
Accounts Payable
$ 595,000
Accounts Receivable 425,000 Notes Payable 1,000,000
Inventory 475,000 Total current liabilities $1,595,000
Total
current assets 1,154,000
Long-term debt $2,500,000
Fixed
assets
Shareholder equity
Net plant and equipment $6,025,000 Common stock $ 100,000

Retained Earnings
2,984,000
Total Equity $3,084,000
Total
assets $7,179,000 Total
liabilities and equity $7,179,000

The
following additional information was also given to you:
·
Average inventory $ 382,000
·
Average total assets $7,075,000
·
Average shareholder’s equity $3,005,000

E&T
is highly automated and use the most current computerized equipment to help
them built each boat. Due to the
specialized equipment used in each boat, a variety of the products used to
manufacture the boats are produced from outside companies. Production costs are variable and can be
traced to each boat. In addition to the
variable costs, management estimates $500,000 of fixed costs would be
associated with the production of all of the boats manufactured in 2011.

Below is data regarding the sales
for E&T Boats, Inc for 2011:

Product

1

2

3

4

5

Sales
volume (000’s)

125

100

35

76

14

Unit
Selling Price

$25,000

$40,000

$75,000

$30,000

$125,000

Unit
Variable Cost

$15,000

$21,250

$50,000

$15,000

$85,000

Required:
You
are to write a 5 to 7 page report, excluding attachments, on the financial
performance of E&T Boats, Inc. Your report
should be done in a business memo format using APA style as applicable.
You must cite all sources used in APA style.
All internet sites used should be cited and included as a
reference.
Make sure you include all of your
calculations and support all of your answers based on the knowledge you have
obtained throughout the course. Your
calculations should be included as an attachment and not included in the body
of the paper. If you did not do the
calculations yourself and used a website or other tool, this should be cited
and included as one of your references.

Your report must include at a
minimum the following items.
1. Calculate
the following ratios based on the 2011 financial statement:
·
Current ratio
·
Quick ratio
·
Total asset turnover ratio
·
Inventory turnover ratio
·
Total debt ratio
·
Debt-equity ratio
·
Profit margin
·
Return on assets
·
Return on equity

2. Compare the performance of E&T to the
industry ratios below and identify differences between the ratios of E&T
and the industry averages. Explain the
possible reason why the ratio may be higher or lower than the industry average.
Identify and discuss all areas of concern based on your comparison. You need to also include any actions
management needs to take to bring the ratios of E&T more in line with the
industry averages.

Industry Average Ratios for 2011

Current
ratio

1.43

Quick
ratio

.38

Total
asset turnover ratio

.85

Inventory
turnover ratio

1.36

Total
debt ratio

.52

Debt-equity
ratio

1.25

Profit
margin

1.98

Return
on assets

1.50

Return
on Equity

2.25

3.
E&T has been considering adding
one additional boat to their production line to reach a different
clientele. Unfortunately, they only have
enough room to build a total of five boats; therefore, if they choose to add an
additional boat they will need to discontinue manufacturing one of their
current boats. The projections for the
new boat are as follows:
·
Projected
sales: 50 per year
·
Unit
selling price: $20,000
·
Unit
variable cost: $10,000

Should E&T add the additional boat to their production
line? If so, which boat should be
discontinued? For this requirement you must review each boat independently to
determine the financial impact if the proposed boat is added to the production
line and one of the other boats are eliminated.
To accomplish this you need to complete at a minimum the following:

·
Determine
the contribution margin for each boat.
·
Determine
a method to allocate fixed costs and determine the profitability by boat. Make sure you disclose the method you use to
allocate fixed costs.
·
Determine
the breakeven point for each boat.
·
Non-financial
factors that should be considered in this decision.
·
Make
your recommendation based on your calculations.