Student Essay

1102 WordsMay 29, 20145 Pages
Assignment Problems 10-1 and 11-1 Problem 10 – 1 Joon Background Joon manufactures and sells to retailers a variety of home care and personal care products. Joon has a single plant that produces all four of its product lines: Stick Goods (brooms and mops), Floor Care (strippers, soaps, and waxes), Brushes (hair brushes and shoe brushes), and Aerosols (room deodorizers, bug spray, furniture wax). The Joon plant has considerable excess capacity. Senior management has identified a potential acquisition target, Snuffy, that sells a line of automotive products (car waxes, soaps, brushes, and so forth) that are complementary to Joon’s existing products and that can be manufactured in Joon’s plant. Snuffy does not have any manufacturing facilities, but rather outsources the production of its products to contract manufacturers. Snuffy can be purchased for $38 million. Required: a. Prepare a pro forma financial statement that shows Joon’s financial performance (net income) for the most recent fiscal year assuming that Joon has already acquired Snuffy’s car care products and has incorporated them into Joon’s manufacturing and SG&A processes. In preparing your analysis, make the following assumptions: (i) Snuffy’s products have the same fixed and variable cost structure as Joon’s exisiting lines (i.e., variable overhead is $3.50 per direct labor hour and variable SG&A is 20 percent of revenues). (ii) The addition of Snuffy products does not change the demand for Joon’s existing products. (iii) There are no positive or negative externalities in manufacturing from having the additional Snuffy volume in the plant. (iv) There is sufficient excess capacity in the plant and the local labor markets to absorb the additional Snuffy volume without causing labor rates or raw material prices to rise. b. Based on your financial analysis in part (a), should Joon

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