Alalla Essay

953 Words Oct 23rd, 2013 4 Pages
lAssignment 3.3: Case Study, Casa de Diseño

In January 2012, Teresa Leal was named treasurer of Casa de Diseño. She decided that she could best orient herself by systematically examining each area of the company's financial operations. She began by studying the firm's short-term financial activities.
Casa de Diseño is located in Southern California and specializes in a furniture line called "Ligne Moderna." Of high quality and contemporary design, the furniture appeals to the customer who wants something unique for his or her home or apartment. Most Ligne Moderna furniture is built by special order because a wide variety of upholstery, accent trimming, and colors is available. The product line is distributed through exclusive
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An analysis of Casa de Diseño's accounts payable showed that its average payment period is 30 days. Leal consulted industry data and found that the industry average payment period was 39 days. Investigation of six California furniture manufacturers revealed that their average payment period was also 39 days.
Next, Leal studied the production cycle and inventory policies. Casa de Diseño tries not to hold any more inventory than necessary in either raw materials or finished goods. The average inventory age was 110 days. Leal determined that the industry standard, as reported in a survey done by Furniture Age, the trade association journal, was 83 days.
Casa de Diseño sells to all of its customers on a net-60 basis, in line with the industry trend to grant such credit terms on specialty furniture. Leal discovered, by aging the accounts receivable, that the average collection period for the firm was 75 days. Investigation of the trade association's and California manufacturers' averages showed that the same collection period existed where net-60 credit terms were given. Where cash discounts were offered, the collection period was significantly shortened. Leal believed that if Casa de Diseño were to offer credit terms of 3/10 net 60, the average collection period could be reduced by 40 percent.
Casa de Diseño was spending an estimated $26,500,000 per year on operating-cycle investments. Leal considered this expenditure

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