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The accounts of Wizard Pinball Manufacturing Pty Ltd include the following information - HSC - SSCE Business Studies - Question 23 - 2004 - Paper 1
Question 23
The accounts of Wizard Pinball Manufacturing Pty Ltd include the following information. (S) Accounts Payable 180 000 Accounts Receivable 80 000 Cash 20 000 Intangi... show full transcript
Worked Solution & Example Answer:The accounts of Wizard Pinball Manufacturing Pty Ltd include the following information - HSC - SSCE Business Studies - Question 23 - 2004 - Paper 1
Step 1
Calculate and interpret the current ratio of Wizard Pinball Manufacturing Pty Ltd.
Answer
To calculate the current ratio, we first determine the current assets and current liabilities.
Current Assets:
- Cash: $20,000
- Accounts Receivable: $80,000
- Inventories: $150,000
Thus, the total current assets is:
Current Liabilities:
- Accounts Payable: $180,000
- Overdraft: $70,000
Thus, total current liabilities is:
Now, we can calculate the current ratio: ext{Current Ratio} = rac{ ext{Current Assets}}{ ext{Current Liabilities}} = rac{250,000}{250,000} = 1
Interpretation: A current ratio of 1 indicates that Wizard Pinball Manufacturing Pty Ltd has just enough current assets to cover its current liabilities. This suggests that the company is in a stable position to manage its short-term obligations.
Step 2
Describe ONE method that could be used to control inventory at Wizard Pinball Manufacturing Pty Ltd.
Answer
One effective method to control inventory is the Just-in-Time (JIT) inventory management system. This approach focuses on reducing inventory holding costs by ordering and receiving goods only as they are needed in the production process.
Benefits of JIT Include:
- Reduced Holding Costs: By minimizing the amount of inventory on hand, the company can save on storage and maintenance costs.
- Increased Efficiency: Production is streamlined, as materials arrive just as they are needed, potentially speeding up the manufacturing process.
- Improved Cash Flow: Less money is tied up in unused stock, thereby freeing up funds for other operational needs.
Implementation Steps:
- Establish strong relationships with suppliers for timely deliveries.
- Use accurate demand forecasting to determine ordering quantities and schedules.
- Train staff to manage inventory levels effectively and recognize when to reorder.