The Following Information Comes from the January 31, 2014, Financial

question 105

Essay

The following information comes from the January 31, 2014, financial statements of Dynamo Ltd, a clothing retailer: $\begin{array}{lrr}&2014&2013\\\text { Cash and cash equivalents } & \$ 20,000 & 15,000 \\\text { Accounts receivable } & 1,400 & 1,100 \\\text { Inventories, ending } & 26,000 & 25,000 \\\text { Accounts payable } & 20,100 & 17,600\\\text { Sales } & 227,000 \\\text { Cost of goods sold } & 140,500 \\\text { Net income } & 10,700\end{array}$ Required:
A) Calculate their cash lag.
B) Explain what the cash lag tells you about a company in general and this company in particular.
C) Other than the ratios, what other information in Dynamo's financial statements would be useful when analyzing their liquidity?

• A) Calculate their cash lag.
• B) Explain what the cash lag tells you about a company in general and this company in particular.
• C) Other than the ratios, what other information in Dynamo's financial statements would be useful when analyzing their liquidity?

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Definitions:

Labor Efficiency Variance

The difference between the actual hours worked and the standard hours expected for the actual production level, multiplied by the standard labor rate.

Direct Materials

The raw materials that are directly traceable to a finished product and are an integral part of the finished product.

Standard Costs

Predetermined costs for material, labor, and overhead used as benchmarks against which to compare the actual production costs.

Direct Material

Raw materials that are directly traced and assigned to the production of a specific product.