ACCT499 Case 2-7 Outline

ACCT499 Case 2-7 Outline

Author: Dannie Young


American Public University Case Study Outline Review the case study instructions in Week 2. Then, create an outline for the case study due inWeek 2. The outline must contain the thesis statement which is the last 1 - 3 sentences of theintroduction. The outline must also contain: An introduction with thesis statement. At least 5 body paragraphs specifically addressing the case study questions. A conclusion. A reference page with a minimum of 3 scholarly references. The paper must be formatted according to APA style. You must use at least 2 scholarly resourcesother than the textbook to support your claims. Case 2-7Milton Manufacturing CompanyMilton Manufacturing Company produces a variety of textiles for distribution to wholesalemanufacturers of clothing products. The company’s primary operations are located in LongIsland City, New York, with branch factories and warehouses in several surrounding cities.Milton Manufacturing is a closely held company. Irv Milton is the president of the company. Hestarted the business in 2002 and it grew in revenue from $500,000 to $5.0 million in 10 years.However, the revenues declined to $4.5 million in 2012. Net cash flows from all activities alsowere declining. The company was concerned because it planned to borrow $20 million from thecredit markets in the fourth quarter of 2013.Irv Milton met with Ann Plotkin, the chief accounting officer (CAO), on January 15, 2013, todiscuss a proposal by Plotkin to control cash outflows. She was not overly concerned about therecent decline in net cash flows from operating activities because these amounts were expectedto increase in 2013, as a result of projected higher levels of revenue and cash collections.Plotkin knew that if overall capital expenditures continued to increase at the rate of 26 percentper year, Milton Manufacturing probably would not be able to borrow the $20 million.Therefore, she suggested establishing a new policy to be instituted on a temporary basis. Eachplant’s capital expenditures for 2013 would be limited to the level of capital expenditures in2011. Irv Milton pointedly asked Plotkin about the possible negative effects of such a policy, butin the end Milton was convinced it was necessary to initiate the policy immediately to stem thetide of increases in capital expenditures. A summary of cash flows appears in Exhibit 1.Sammie Markowicz is the plant manager at the headquarters location in Long Island City. Hewas informed of the new capital expenditure policy by Ira Sugofsky, the vice president for operations. Markowicz told Sugofsky that the new policy could negatively affect plant operationsbecause certain machinery and equipment, essential to the production process, had been breakingdown more frequently during the past two years. The problem was primarily with the motors.New and better models with more efficient motors had been developed by an overseas supplier.These were expected to be available by April 2013. Markowicz planned to order 1,000 of thesenew motors for the Long Island City operation, and he expected that other plant managers woulddo the same. Sugofsky told Markowicz to delay the acquisition of new motors for one year afterwhich time the restrictive capital expenditure policy would be lifted. Markowicz reluctantlyagreed.Milton Manufacturing operated profitably during the first six months of 2013. Net cashinflows from investing activities exceeded outflows by $250,000 during this time period. It wasthe first time in three years there was a positive cash flow from investing activities. Productionoperations accelerated during the third quarter as a result of increased demand for Milton’stextiles. An aggressive advertising campaign initiated in late 2012 seemed to bear fruit for thecompany. Unfortunately, the increased level of production put pressure on the machines and thedegree of breakdown was increasing. A big problem was that the motors wore out prematurely.EXHIBIT 1MILTON MANUFACTURING COMPANYSummary of Cash FlowsFor the Years Ended December 31, 2012 and 20011 (000 omitted)December 31,2012Cash Flows from Operating Activities

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