Import Distributors, Inc. (Case Analysis)

IMPORT DISTRIBUTORS, INC: A WRITTEN ANALYSIS CASE

In Partial Requirements for BA 2005/BA 206- Managerial Accounting Presented to the College of Governance and Business University of Southeastern Philippines-Obrero Campus Barrio Obrero, Davao City

Submitted to: Dr. Rosfe Corlae Badoy, CPA

Submitted by: Garlitos, Joseph Vincent Gregaña, Mark Angelo Tubo, Eric

January 2016 I.

Executive Summary

Import Distributors, Inc. has been a beacon being one of the importers and distributors of appliances and other equipment to retail appliance stores in the Rocky Mountain areas. The company, indeed, is compartmentalized in three product lines, namely: 1)audio equipment (e.g. tuners, tape decks, CD players, and many more); 2)television equipment (e.g. videotape recorders); and 3)kitchen appliances (e.g. refrigerators, freezers, and stoves). The said three lines were considered for a one-third of total sales for company’s sales revenue. The management, however, has seen recently the problem that throughout its operation they did not prepare a departmental income statement. This was the cause where in early 1994, the organization has established and implemented such financial statement for the management group in order not only to show transparency but also to know the performance of the company in terms of the profit earned (or incurred loss). After preparing the income statement, the management found out that amidst of the earned net income which was amounted to 4.3% of sales, there was a net loss of $64,920 in the television department exceeding its operating expenses over the gross margin. Hence, the management made assumptions whether or not to discontinue the operation of the television department due to poor income statement based on the first quarter of the year. II.

Statement of the Problem -What action should be taken with regards to the television department?

III.

Alternative Solution

Apparently, the researchers critically examine if there is really a need by management to discontinue the operation of television department. The answer is “NO”. As a matter of fact, the researchers have come up a concrete solution based on the findings and considerations. The analysis of the income statement shows an over plus of operating expenses versus its gross margin. In the first quarter, the management applied an incorrect cost management system that they failed to reduce expenditures over their given budget that resulted to a net loss. In this way, they have to avoid these operating costs like delivery cost, personnel expense, rent, sales commissions, and other costs that

need for austerity and critical evaluation. By doing this, they will be able to reduce unnecessary expenses that will result to an increase gross margin. IV.

Conclusion and Recommendation

In conclusion, discontinuance of the television department in its operation in IDI is not the best solution. In the first place, the company had failed to prepare income statements in each division groups and closely monitor its operational expenses. Moreover, the net loss of the television department in the first quarter is not the determinant to discontinue the operation. One quarter or three months does not necessarily represent a whole year performance in terms of sales revenue in the company. Thus, the company can still cover the loss in the succeeding months if they have an improved marketing techniques and when it is on favored season. The researchers recommend that television department would still be given a chance to perform more suitably and to continue its operation throughout the year and be closely monitored its operating expenses and is highly encouraged also to make actions on how to increase sales and earn more profit by internally improve not only the said department but in all three product lines’ performances. Actions taken would be in marketing and promotion, cost management which include an annual financial evaluation and planning as well.