We believe PC Depot will be a great venture for Thompson as evident by a net income of $5,054 for the companys first month of operations. We feel that our recommendations to reduce inventory costs and debt will be beneficial to PC Depot

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CASE ANALYSIS

To: Dr. Peggy C. Wright

From: NC Gold (Sherry Barton, David Bennett, Perry Priester, Richard Warren, Kimberly Wood)

Subject: Case 4-1 PC Depot

Date: 12/19/2007

In September, Barbara Thompson started PC Depot, a retail store for personal computers, with initial startup costs in the amount of $158,115 (Anthony, 2004, p.108). During the month various transactions occurred resulting in a net income for the month of September in the amount of $5,054.

Financial transactions for the month of September have been recorded in the general journal, which also includes adjusting and closing entries. NC Gold has prepared the balance sheet and income statement for PC Depot for the month of September. A financial analysis of the balance sheet and income statement was conducted and areas of concern were identified.

One area of concern for PC Depot is the amount of inventory they are carrying for a start up business. During the month of September, PC Depot purchased merchandise for inventory in the amount of $187,440 on credit from suppliers. Cost of sales for the month of September was $38,140 resulting in an ending inventory of $149,300. Another area of concern is the amount of debt PC Depot has incurred through bank loans in the amount of $100,000 and purchases from creditors in the amount of 187,440. NC Gold feels that PC Depot should focus on reducing inventory costs and reducing their short tem and long term debt.
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Some suggestions for reducing inventory costs include implementing the "Just In Time" or consignment method of inventory. Just In Time (JIT) is "a comprehensive inventory and manufacturing control system in which no materials are purchased and no products are manufactured until they are needed" (http://services.eliteral.com/glossary/glossary-of-quality-improvement-terms.php The JIT inventory method could eliminate financial risk. By keeping inventory stored for long periods, companies may experience high storage and investment costs and also obsolete inventory. These costs may hinder the companies' profitability.

For JIT to prove beneficial for PC Depot, the company needs to choose suppliers carefully. Companies may ...

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