Academic journal article Journal of the International Academy for Case Studies

Afro-Caribbean Craft Products: A Case in Budgeting and Financial Analysis1

Academic journal article Journal of the International Academy for Case Studies

Afro-Caribbean Craft Products: A Case in Budgeting and Financial Analysis1

Article excerpt

CASE DESCRIPTION

The primary subject matter of this case concerns Managerial Accounting. Specific issues examined include classifying costs based on changes in the level of productive activity, estimating cost functions, preparing budgeted financial statements, and computing and interpreting selected financial ratios. The case has a difficulty level of three. The case is designed to be taught in two class hours and is expected to require about six hours of outside preparation by students.

CASE SYNOPSIS

Afro-Caribbean Craft Products, a sole proprietorship, which operated on an itinerant basis from the owner's home, was recently offered an attractive opportunity to lease space at an International Airport to establish a retail outlet. The proprietor (Ms. Earla John) estimated that she would need a $40,000 loan to finance the capital and operating costs associated with the proposed retail outlet. Ms. John approached your accounting firm for help with the preparation of a set of projected financial statements requested by a potential financier. She provided a set of historical financial statements for the two most recent years and information about her expectations for the business in the coming year. Students are required to estimate the behavior of all cost items in the income statement and prepare a set of projected financial statements. They are also required to prepare a financial analysis using key ratios and to make a recommendation to the potential financier. This case helps to fill a gap in the pedagogical literature by focusing on the application of basic budgeting principles in a small scale, sole proprietorship setting. …

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