Excel Homework

Introduction

Business operations are a complex mechanism that needs to be comprehended correctly if it is to be in line with the objectives of the entrepreneurs. Management of business operations requires a detailed assessment of the business processes and policies. Short-comings need to be identified if the business if it has to improve its current performance and financial conditions. This would involve a detailed scrutiny and assessment of the profitability, working capital, equities and long-term liabilities of the business. It then needs to carve out policies and steps to improve the financial health of the business.

Discussion

We have been presented with a case of Atkins, AR. It has been observed that the business is experiencing low levels of profitability over the past few years, and the CEO believed the main cause of this to be the short-term working capital mismanagement. The analysis of the present financial statement shows that the company is though earning a gross profit, but not as substantial as it ought to be. The gross profit margin in the present scenario is almost 16 percent. This is not as high as it has to be. Gross profit margin is basically the ratio of profit earned on the sales revenue.

Now, the company has an option to modify its current inventory management by adopting a Just-in-time (JIT) model. A just in time model is the method of operation where the required supplies reach the concerned facility just “as it is needed” (CIMA, 2013). The equipment, materials, or inputs would reach the facility as they are needed. This means that there would basically be zero levels of inventory. Zero inventory levels would mean that the company will not incur holding costs, as there would be none stock held. Inventory and stocks will also not be subject to damage or spoils, as they would only be reached as and when required. Therefore, this would also improve the quality of the products the company is producing.

It can be observed that the company at present is incurring high inventory costs. In addition to the cost of purchases, the company also has to bear the cost of holding the inventory, which at present amounts to $60,000 a year. This is apart from the cost of ordering the supplies, the cost of which comes around $30,000 a year. The collective costs of these amounts come to $90,000 a year. This is a significant cost the ...