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Continuing last unit’s areas of focus (program/project management as viewed through an accounting/finance frame of reference) this week’s focus will be viewing business operations management through an accounting/finance frame. As with the last unit, the area of accounting/finance that applies to this unit’s work is measurement and metrics. The results of a business operation require measurement and metrics (including financial ratios) to demonstrate that the business is performing as expected and providing evidence of the quality of the results. You will have an opportunity to explore these issues as you discuss this week’s case study and as you examine a case study in this week’s written assignment.

Reading Assignment

All course textbooks are accessible through the Syllabus or through the course’s “Textbook” page. If there are any additional, non-textbook Reading Assignments for this Unit, their access/location information will be provided below.

Introduction to business. (2012). Lardbucket.org. 

· Chapter 12 – The Role of Accounting in Business, Chapter 12, section 4 pp. 623-637.

Knowles, G. (2011). Quality management. Bookboon.com. Download the pdf .

· Chapter 9 and Chapter 15. 

Knowles, G. (2011). Six sigma. Bookboon.com. Download the pdf .

· Chapters 11, 12, 13, 14, 15, 16, 17, and 19. 

Case Studies

Erer, M. (2013). The Improvement Project of Science Construction PLC . Journal of Business Case Studies, 9(1), 227-234.

King, W. & Stapleton, D. (1993).   Improving Production at Bioethic Fish Processors, Ltd.  Acadia Institute for Case Studies.  Acadia University.  Copyright © 1993, the Atlantic Entrepreneurial Institute. Reproduction of this case is allowed without permission for educational purposes, but all such reproduction must acknowledge the copyright. This permission does not include publication.

1. Discussion Assignment (3 PAGES)

Please discuss the case study, Improving Production at Beothic Fish, focusing the following elements of the case:

· Identify the problem

· Diagnose the cause(s) 

· The case study indicates that the general manager plans on reorganizing the floor plan of the plant. Offer your recommendations on how to reorganize the floor plan. Please also offer what metrics should be used to determine if the reorganized floor plan is effective.

2. Written Assignment (3PAGES)

In this paper, please discuss The Improvement Project of Science Construction PLC case study. In doing so, please address the following areas:

1. Identify the problem: What financial metrics support the problem you identified?

2. Diagnose the cause(s): Describe the root cause. How does this cause link to the financial metrics you have selected

3. Prescribe possible alternatives

4. Recommend a plan of action (decision/implementation): How do you measure success?

5. In addition, each case study response should also state why this case is important and relevant to a study of business.

Support your observations with research and logic. Discuss what limitations exist with the case study information provided. What other material would be important to your analysis?

Submit a 3-page case paper, (independent of reference page) double-spaced. Paper and all citations should be in APA format.

Read the  General Guidelines for Case Studies  and the  Case Study Rubric  before beginning this assignment.

General Guidelines for Case Studies

A case study is a short description of a real business situation. Analyzing case studies gives you the opportunity to apply concepts you’re learning to real business problems. Cases are generally written for several types of analysis. Usually, there is not a “right or wrong” answer. Rather, cases provide a vehicle for you to demonstrate your understanding and ability to apply course concepts and theories. You must use appropriate sources (properly cited) to support your position. Check your analysis by assessing how well it demonstrates your subject knowledge. If your answer relies solely on your ‘impressions’ of the topic, it is likely that the analysis is not your best effort.

Simply answering the questions which are part of the case is not enough; consider the questions to be clues to the important concepts and facts. You are strongly encouraged to use the following outline so that your analysis is organized appropriately:

1. Identify both the key issues and the underlying issues. In identifying the issues, you should be able to connect them to the business principles which apply to this situation.

2. Discuss the facts which affect these issues. The case may have too much information. In your discussion, you should filter the information and discuss those facts which are pertinent to the issues identified above.

3. Discuss your tentative solution to the problem and how you would implement your solution. What actions would you propose to respond to the situation, based on the knowledge you have gained in this course? You should draw on knowledge gained in your readings, experience and coursework (in this course and others) to support your response. Be sure to properly cite references in APA format. You should also draw on other references such as business periodicals and relevant journals. Remember that an analysis is more than simply a summary of the Case Study.

4. Discuss follow-up and contingency plans. How will the organization know that your proposed solution is working? What should they do if it does not work?

Your analysis of each case study should be written in APA format. If you need assistance with APA formatting, the Online Writing Lab at Purdue University has excellent APA-specific resources available here: Purdue OWL APA Style Help.

Evaluation Criteria

• Have you identified the critical issues/problems in the case and analyzed the key facts related to the issues/problems?

• Have you discussed a tentative solution that addresses the issues/problems and how you would implement your solution?

• Is information from the textbook and other sources integrated into your analysis appropriately? For all sources, you must provide complete APA citations.

• Is the paper professionally presented? Remember your audience. It is important to present your information as clearly and succinctly as possible. Do not sacrifice thoroughness for mere brevity.

• Have you read it over carefully and corrected any grammar and spelling errors?https://owl.english.purdue.edu/owl/https://owl.english.purdue.edu/owl/https://owl.english.purdue.edu/owl/resource/560/01/

Case Analysis Rubric

Criterion Unacceptable Minimal Fair Good Excellent Total

Description of the Case and

Identification of Major Issues

No or brief description is given. No identification of major issues.

Description of case is minimal, insufficiently capturing important case details. Failure to identify and fully articulate major issues.

Description of case is unnecessarily long or too short and needs more detail. Major issues are identified, but not fully articulated.

Description is concise and most major issues are identified and well articulated.

Description of case is concise and contains thoughtful examination. All major issues are identified and well articulated.

20% of grade

Score 0 6 7 9 10 10

Connections to Course

Readings, Material and Research

In analyzing the case no course content is used to address the case issues or support the conclusions.

In analyzing the case, content is mentioned, but not used to support the issues or the conclusions.

In analyzing the case, key course content is used to offer some support for the issues and/or the conclusion.

In analyzing the case, key course content provides important linkages between the material covered and the issues of the case and also to support the conclusion.

In analyzing the case, course content is used critically and creatively to support the issues and conclusion.

25% of grade

Score 0 4 6 8 10 10

Depth and Scope of Analysis

The analysis failed to provide the basic operational and strategic scope of case.

The analysis is superficial, missing major components of the strategic and/or operational aspects of the case.

The analysis takes into account both strategic and operational aspects, but is not balanced in its approach.

The analysis is detailed and documents both operational and strategic aspects in a balanced way.

The analysis is detailed, providing an insightful review on both operational and insightful aspects of the case.

25% of grade

Score 0 4 6 8 10 10

Solutions and


Little or no actions are suggested to the issues. No or a very weak solution is presented.

Superficial and/or ill-fitting strategies or solutions are provided.

Solutions and/or strategies need some improvement to be implementable.

Appropriate, well thought-out solutions to most issues are provided. Solutions would most-likely be

Well documented, reasoned and excellent strategies are provided to issues and proposed

20% of grade

Criterion Unacceptable Minimal Fair Good Excellent Total

implementable. solutions are implementable.

Score 0 6 7 9 10 10

Writing Clarity and Quality

Writing is unclear. Grammar and spelling mistakes are numerous.

Writing is clear, but not concise. Style may be inappropriate (e.g. too casual) for assignment. Some spelling and grammar errors are apparent.

Writing is clear and professional is style. While generally concise, the paper could be tightened up a bit. Few spelling or grammar errors.

Writing is clear, concise and professional. Minimum spelling and grammatical errors.

Writing is clear, concise and professional. The writing follows a logical flow. No spelling or grammatical errors are present.

10% of grade

Score 0 4 6 8 10 10 TOTAL 100

Improving Production At Beothic Fish Processors Ltd. “The Pelagic processing area at the plant in Valleyfield, Newfoundland, has not worked out as well as we had hoped for processing capelin,” identified the General Manager of Beothic Fish Processors Ltd. “Although the company continues to be very successful, if we are to offer competitive prices and still earn a profit we must keep our production costs as low as possible, and given that production costs are a function of production efficiency, it is imperative that we improve our present production system. It appears to me that we must look carefully at our existing plant layout to accomplish this.” Company Background Beothic Fish Processors Ltd. (Beothic) was one of the largest processors of pelagic (capelin, mackerel and herring) fish species in Newfoundland and Labrador, with capelin being, by far, the primary species. Although the company began in 1967, it was not until 1979, when a modern cold storage facility was constructed at Valleyfield, and new blast freezers were installed, that the company was able to handle capelin. By 1989, capelin was a major contributor to Beothic’s overall profitability. By Newfoundland standards, capelin processing was a relatively new fishery, having been developed about thirty years ago. Originally, capelin were sorted by hand, however, it proved impossible to handle the enormous quantities demanded by the market in this manner. The industry soon turned to the use of mechanical sorters which, although not perfect, were able to process large quantities quickly and at relatively low cost. The Present Production System The capelin processing facilities at Beothic are illustrated in Exhibit 1. Capelin entered the system via a water-filled infeed hopper, labelled as 1 on the exhibit. At this point, the insulated containers used for transport were simply emptied into the hopper. They then proceeded along a conveyor belt to the mechanical separator — a Petco 3500 (2). The separator consisted of a series of ribbed slots, which gradually increased in size, that the capelin were shaken across. The very small capelin fell out first, and were conveyed back to the offal area where the unusable portion of the raw material was collected (3). The intermediate sized capelin, which were the marketable females, fell through next, and were conveyed to the distribution tables (4). The capelin, which were primarily male, proceeded to the end of the separator and joined the small females on the conveyor as offal. At each distribution table, which was actually a conveyor, approximately 18 workers removed by hand

and discarded any unsuitable product that was not eliminated mechanically. At the end of each table (5), the capelin fell into boxes, which were hand-carried to the weighing stations (6). At this point, the boxes were checked to ensure that predetermined weights were contained in each. Boxes were then placed on a metal roller conveyor where they were closed and strapped. They were then placed on pallets, brought by forklift to the blast freezing area, and frozen to a temperature of -21oC, a process that normally took 12 to 16 hours. Pelagic species such as capelin were generally blast frozen unless these freezers were already filled to capacity. As a variation on the blast freezing system, which would normally only occur when the blast freezers were completely full, plate freezing may be used. The capelin falling off the distribution tables (5) were caught in plastic pans, which were carried by hand to the weighing stations (6). After weighing, the pans were hand-carried to the packing tables (7), where they were emptied into cartons designed for plate freezing. Because in the plate freezing process the plates exerted pressure on the product, these cartons had to be placed in metal pans, which helped them retain their shape. The capelin were then transported by forklift to the main plant area for plate freezing. The metal pans were then manually removed from each frozen carton of product (the “knocking out process”), and the product stacked on pallets for cold storage. The additional handling required by this type of freezing increased unit labour costs and could potentially damage the product, thus making it relatively unattractive to the processor. Problems of the Present System Shortly after preparing this description of his capelin processing facility, the General Manager held a planning meeting with the plant manager and three production supervisors. The purpose of the meeting was to review the pelagic production plan for the upcoming year, particularly with respect to capelin. “As you probably know,” he began, “the single most profitable species processed here at the plant is capelin. Because the season is so short, only three weeks at best, it is vital that production be maximized in that period. We have three blast freezers and several plate freezers. It is absolutely vital that these freezers be kept full. Too often last year, we were not at capacity during this period. I’d like to take each aspect of our capelin processing system and examine it for problems.” When the meeting had ended, the following list of problem areas were identified by the management group: 1. Space: All of the group agreed that the production area was extremely crowded with, as one of the

supervisors stated, “people tripping over each other.” Suggested solutions to this problem ranged from expanding the building to provide more space, to reorganizing the equipment in the present building to provide better working areas. The General Manager felt the equipment was poorly organized and that there were too many places on the line where the product had to be handled by people, thus increasing labour costs. He felt that if the equipment could be laid out in a straighter line many of these extra people could be eliminated and production could proceed more smoothly.

2. The infeed system: The supervisors were critical of the amount of wasted raw material caused by

capelin falling off the beginning of the infeed conveyor to the offal conveyor below. A possible solution would be to simply move the hopper closer to the separator and to remove the conveyor completely.

3. The distribution tables: All three of the supervisors commented on the way that the distribution tables

were organized. The inclined conveyor leading from the separator deposited the female capelin at one end of a table. They then had to be pushed manually to the ends of the distribution tables.

4. The weighing system: Another problem area identified during the meeting concerned the weighing system. Capelin arriving at the end of the distribution tables were caught in either blast freezer boxes or in plate freezer pans, depending on the freezing method to be used. They were then moved to the weighing stations, where sufficient capelin were added or removed to bring the package to the desired weight. Blast freezer boxes were then placed on the roller conveyor, where they were closed in preparation for transport by forklift to the freezers. In order to do this, the forklift operator had to maneuver around the packing tables. Although this was not a problem for a skilled forklift operator, it created a potential safety risk to those working in that area of the plant. As the plant manager put it, “they often worked with one eye on the job and the other on the forklift.” When the product was to be plate frozen, the plastic freezer pans had to be carried from the weigh stations to the packing tables. There, the capelin were transferred from the pans to cardboard boxes, which, in turn, were placed into the metal freezer pans for plate freezing.

Conclusion After reviewing his notes, the General Manager realized that his entire capelin production system needed to be reorganized. In general, there were two key items to be addressed. First, the movement of capelin through the plant from the raw material stage to finished product was generally inefficient. Secondly, he considered the critical problem of the plant to be an inability to keep its freezers working at full capacity. He knew that he needed to look at the overall plant layout to make appropriate changes to improve production at the plant. This case was adapted from a case prepared by Professors Wayne King and Donna Stapleton as a basis for classroom discussion, and is not meant to illustrate either effective or ineffective management. Copyright © 1993, the Atlantic Entrepreneurial Institute. Reproduction of this case is allowed without permission for educational purposes, but all such reproduction must acknowledge the copyright. This permission does not include publication.

Exhibit 1 Existing Layout Of Processing Area

  • Company Background
  • The Present Production System
  • Problems of the Present System
  • Conclusion
    • Exhibit 1

Journal of Business Case Studies – May/June 2013 Volume 9, Number 3

2013 The Clute Institute Copyright by author(s) Creative Commons License CC-BY 227

The Improvement Project

Of Science Construction PLC Mert Erer, Marmara University, Turkey


This case is designed to be an introduction to preparing improvement projects for insolvent

companies. After reading this text and answering the questions for discussion, the students

understand 1) the major aspects that should be highlighted in an improvement project, 2) the links

between the reasons for bankruptcy and countermeasures, and 3) the links between the planned

measures and their representation in financial statements.

Keywords: Insolvency; Improvement Project; Bankruptcy Code


he Turkish Execution and Bankruptcy Code allows insolvent companies to apply to the commercial

court and propose a project for restructuring its debts and strengthening its financial status. If the

project is found to be serious and feasible by the court expert, the bankruptcy will be postponed for

one year.

This postponement is very important for insolvent companies, since the postponement of the decision

prevents the initiation of execution proceedings or suspends the pending execution proceedings until the end of the

postponement. Consequently, the plan plays a vital role for insolvent companies by allowing them to continue their

operations and emerge from bankruptcy.


Science Construction PLC offers design, project development, equipment provision, project financing and

contracting services for highways, roads, tunnels and viaducts. The most important customers of the company are

Istanbul, Ankara, Ismir, Bursa, and Kocaeli Metropolitan Authorities and the General Directorate of Highways. The

company sells asphalt to these customers and paves the roads under their authority.

The asphalt production capacity of the company is 520,000 tonnes per year. The headquarters is located in

Istanbul. There are five active construction sites in three different cities. The company owns a license for removing

equipment domestically that is valid until June 2014 as well as ISO 9001:2009 for its quality management system

and OHSAS 18001:2008 for occupational health and safety management standards.


Effects Of The Global Financial Crisis

The main reason for the bankruptcy is the ongoing financial crisis that began in 2008. Throughout the

financial crisis, local demand shrank drastically, the possibility of finding financial resources became limited, and

the cost of credit and credit guarantees rose. As a result, the company had difficulties preserving its profitability and

maintaining the cash balance.

Public investments and the budget of metropolitan authorities were also decreased due to inadequate

resources. As a company whose client base was primarily in the public sector, the effects of the crisis were



Journal of Business Case Studies – May/June 2013 Volume 9, Number 3

228 Copyright by author(s) Creative Commons License CC-BY 2013 The Clute Institute

Problems in Collecting Receivables

The company experienced problems collecting its receivables from the metropolitan authorities in a timely

fashion. The receivables could only be collected between seven to nine months after billing. This delay resulted in

the necessity of finding additional financial resources to settle short-term debts. Additional financial resources were

created either by selling the receivables to factoring companies, by discounting progress bills, or by taking bank

credits. The financing cost of selling receivables was 15%, it was 13% for discounting progress bills and between 11

to 16% for bank credits.

If payment terms are delayed when buying materials and equipment, in order to delay cash outflows, the

prices rise. Consequently, the profitability is diminished and the long-term cash flow is damaged .

Differences in The Development Of Costs And Contract Prices

Selling asphalt to metropolitan authorities constitutes the largest proportion of revenues. The tenders are

issued in February and March and production takes place between May and November. The price difference

between the date of securing the contract and the delivery date is reflected in the progress payments at the level of

the producer’s price index (PPI) according to the Public Procurement Law. In 2010, in particular, the PPI remained

substantially below the increase in asphalt prices. The development of asphalt prices and the PPI are shown in Table

1. The raw material prices for the company rose by 18% between May and November 2010, but the PPI announced

by the Statistical Institute was 7% for the same period. The production costs rose, but the company could not secure

a price increase to match the difference.

Table 1: The Development Of Asphalt Prices And The PPI

Date Raw Material Unit Price * (TRY/t)

21.05.2010 50/70 Asphalt Price 710.00

13.11.2010 50/70 Asphalt Price 837.00

21.05.2010 70/100 Asphalt Price 702.00

13.11.2010 70/100 Asphalt Price 829.00

* Prices of the Ismit Refinery, VAT not included.

Asphalt Price Increase Rate (50/70) 17.9%

Asphalt Price Increase Rate (70/100) 18.1%

Producer’s Price Index 7.0%


The strengths of the company can be summarised as:

• Over 20 years of experience in the sector • Trust in the brand Science Construction because of successfully completed major contracts • Good relationships with the Istanbul and Ankara Metropolitan Authorities and administration of the

General Directorate of Highways

• Business Experience Certificate given by the Authorities which enables the company to participate in tenders up to 95,000,000.00 TRY

• Licence for removing equipment domestically so that transportation of materials and equipment can be handled by the company

• One of the best equipment pools in Turkey and qualified staff to use the equipment

The weaknesses of the company are:

• Problems in collecting receivables • Short-term debt burden with high financing costs • Huge difference between the increase in production costs and the increase in contract values • Problems in cost controlhttp://creativecommons.org/licenses/by/3.0/http://www.cluteinstitute.com/

Journal of Business Case Studies – May/June 2013 Volume 9, Number 3

2013 The Clute Institute Copyright by author(s) Creative Commons License CC-BY 229


The current ratios are 0.95, 0.90 and 0.82 for the years 2008, 2009 and 2010, respectively. The current ratio

is under the industry average of 1.20 and has been decreasing for three consecutive periods. The working capital of

the company has also been negative in the last three periods. Thus, the company does not have sufficient current

assets to cover its short-term debt. This gap has been financed by assuming more short-term debt. The leverage of

the company was 5.65 in 2010. Since the leverage is high, the risk premium of the company is also high, which

leads to higher interest rates for bank credits.

High short-term debt accumulated over the years and high interest rates put substantial pressure on the

company limiting its ability to make decisions. The company plans to substitute the short-term debt with equity in

order to correct this unhealthy financial condition.

Although the revenues are increasing, operating profit and net income have deteriorated over the last three

periods. The primary reason is that the increase in cost of services sold was more than the increase in revenues. The

cost of services sold increases since the price of raw materials rises. Permanent measures will be taken in order to

minimize costs and keep the company running.


Payments From The Shareholders

Capital Increase

The issued capital will be increased by 2,000,000.00 TRY by March 2011 and 500,000.00 TRY will be paid

in the same month. The remaining 1,500,000.00 TRY will be paid in three equal terms in 2011 and 2012. The

payment dates are shown in the Cash Flow Statement.

Collecting Receivables from the Shareholders

Shareholder F. K. will pay his total debt of 1,876,564.72 TRY in three equal terms in February, August and

December 2011. Shareholder, Hisal Moving PLC, will pay 300,000.00 TRY in 2011 and 350,000.00 TRY in 2012.

Cost Cutting

Cuts in Production Costs

Raw Materials

Purchase price for crushed stone is 14 TRY. The purchase price consists of the price of the crushed stone

(6.50 TRY) and transport costs (7.50 TRY). Starting in 2011, the company will handle the transportation with its

own vehicles and cut transport costs by 3.00 TRY. The cost of raw materials is given in Table 2.

Table 2: Cost Cutting for Raw Materials per Unit



Amount per


Current Purchase Price per

Unit (TRY)

Current Amount


Planned Purchase Price per

Unit (TRY)

Planned Amount



Stone 1.0000 14.00 14.00 11.00 11.00


50/70 0.0447 843.00 37.68 843.00 37.68

Fuel oil 5.5000 1.44 7.92 1.44 7.92

Gas oil 1.0000 2.62 2.62 2.62 2.62

Total 62.22 59.22http://www.cluteinstitute.com/http://creativecommons.org/licenses/by/3.0/

Journal of Business Case Studies – May/June 2013 Volume 9, Number 3

230 Copyright by author(s) Creative Commons License CC-BY 2013 The Clute Institute

Direct Labour

* There were 102 employees at the beginning of 2010. Some unqualified personnel were dismissed and the number

of staff was reduced to 86 as of January 2011. In the coming periods, the work force will be organised according to

the number and value of contracts the company secures.

* The employees that do not work due to underproduction will be given unpaid leave of absence for the period.

Thus, the salaries and the subsidiary costs (e.g. meals, services) will decrease.

Production Overheads

* Weekly budgets will be prepared in order to control the consumption of indirect materials. No consumption above

the caps set by the budget will be authorised.

General Overheads

* The number of vehicles used by the management will be decreased in order to reduce the maintenance, insurance,

and fuel costs.

* The purchase of consumables will be centralised and credit cards given to the management will be collected so

that an efficient cost control can be achieved.

* The night lighting of the headquarters and the construction sites will be removed. A saving in energy costs of up to

50% can be realised by replacing the costly lighting with halogen lamps, as can be seen in Table 3.

Table 3: Energy Cost Savings

Plant Energy Costs before 2011

(monthly, actual, TRY)

Energy Costs after 2011

(monthly, planned TRY)

Anticipated Energy Cost

Savings (monthly)

HQ 667.88 320.58 347.30

Construction Site_1 2,671.53 1,442.63 1,228.90

Construction Site_2 2,385.30 1,168.79 1,216.50

Construction Site_3 1,908.24 961.76 946.48

Construction Site_4 858.71 446.53 412.18

Construction Site_5 1,049.53 503.77 545.77

Total 9,541.19 4,844.06 4,697.13


* Infrastructure investments are gathering speed since the municipal elections are near. Ankara Metropolitan

Authority contracted 950,000 tonnes of asphalt in 2011. The company has 25% market share in the Ankara district.

Hence, it can be assumed that at least 230,000 tonnes will be obtained by the company in the following period. With

contracts from other authorities, the company expects a sales volume of 265,000 tonnes.

* The company expects the market volume of the private sector to shrink by 5%, thus the sales volume of 20,000

tonnes in 2010 will be reduced to 19,000 tonnes.


Proforma Income Statement

Proforma income statements is shown in Table 4. The profitability will be 11.06% in 2011 and 9.18% in 2012.http://creativecommons.org/licenses/by/3.0/http://www.cluteinstitute.com/

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Table 4: Proforma Income Statement

01.01.-31.03. 01.01.-30.06. 01.01.-30.09. 01.01.-31.12. 2012

Revenues 1 5,488,000.00 18,210,500.00 31,499,500.00 37,705,900.00 39,591,195.00

(Cost of Services Sold) 2 (4,737,270.44) (15,166,742.12) (24,206,782.97) (30,566,013.24) (32,705,634.17)

Gross Profit 750,729.56 3,043,757.88 7,292,717.03 7,139,886.76 6,885,560.83

(General Administrative

Expenses) 3 (62,742.53) (218,236.13) (370,616.85) (523,197.58) (559,821.41)

Profit from On-going

Operations 687,987.03 2,825,521.75 6,922,100.18 6,616,689.18 6,325,739.42

(Financing Costs) 4 (389,938.74) (679,877.48) (910,198.35) (1,090,519.23) (1,199,571.15)

(Financial Leasing Costs) 5 (358,944.98) (691,035.84) (1,023,126.69) (1,355,217.54) (1,490,739.29)

Profit (60,896.69) 1,454,608.43 4,988,775.14 4,170,952.41 3,635,428.98

1. Revenues from new contracts and the relevant costs are shown in Table 5. Most of the sales will be made to

the public sector. The costs are based on the calculations in “Raw Materials”.

Table 5: Revenues From New Contracts

01.01.-31.03. 01.01.-30.06. 01.01.-30.09. 01.01.-31.12.

Revenues 2011

(from new contracts) 0.00 8,145,900.00 18,274,400.00 24,480,800.00

Amount (t) 0.00 9,500.00 19,000.00 19,000.00

Revenues – Private Sector (TRY) 0.00 818,900.00 1,637,800.00 1,637,800.00

Amount (t) 0.00 85,000.00 193,000.00 265,000.00

Revenues – Public Sector (TRY) 0.00 7,327,000.00 16,636,600.00 22,843,000.00

Costs 2011

(from new contracts) 0.00 5,596,668.00 12,555,488.00 16,819,616.00

Amount (t) 0.00 9,500.00 19,000.00 19,000.00

Costs – Private Sector (TRY) 0.00 562,628.00 1,125,256.00 1,125,256.00

Amount (t) 0.00 85,000.00 193,000.00 265,000.00

Costs – Public Sector (TRY) 0.00 5,034,040.00 11,430,232.00 15,694,360.00

Profit (TRY) 0.00 2,549,232.00 5,718,912.00 7,661,184.00

2. Cost of services sold consists of raw materials, direct labour, construction site expenses and cost of vehicles

and equipment used in the production. The latter two comprise the overhead costs. Cost of services sold is

shown in Table 6.

Table 6: Cost of Services Sold

01.01.-31.03. 01.01.-30.06. 01.01.-30.09. 01.01.-31.12.

Raw Materials 0.00 5,596,668.00 12,555,488.00 16,819,616.00

Direct Labour 3,413,771.40 7,082,285.80 8,081,351.80 9,080,417.80

Overheads 1,323,499.04 2,487,788.32 3,569,943.17 4,665,979.44

Total 4,737,270.44 15,166,742.12 24,206,782.97 30,566,013.24

3. General administrative expenses consist of office expenses and the cost of vehicles used by management.

Water, energy, telephone, gas, internet connection, heating, cable television, cleaning and representation

expenses make up the office expenses. General administrative expenses are shown in Table 7.

Table 7: General Administrative Expenses

01.01.-31.03. 01.01.-30.06. 01.01.-30.09. 01.01.-31.12.

Office Expenses 54,942.53 202,636.13 348,116.85 493,597.58

Other 7,800.00 15,600.00 22,500.00 29,600.00

Total 62,742.53 218,236.13 370,616.85 523,197.58

4. Financing costs consist of interest costs of bank credits taken for the purchase of construction equipment

and other bank credits, as can be seen from Table 8.http://www.cluteinstitute.com/http://creativecommons.org/licenses/by/3.0/

Journal of Business Case Studies – May/June 2013 Volume 9, Number 3

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Table 8: Financing Costs

01.01.-31.03. 01.01.-30.06. 01.01.-30.09. 01.01.-31.12.

Equipment Nr. 64973 56,301.38 112,602.74 168,904.12 225,205.51

Caterpillar Nr. 298573 18,547.37 37,094.73 46,024.23 54,953.73

Total (Credits for Equipment) 74,848.75 149,697.47 214,928.35 280,159.24

Interest payments 313,500.00 527,000.00 690,500.00 804,000.00

Transaction costs 810.00 1,620.00 2,430.00 3,240.00

Commission Fee 780.00 1,560.00 2,340.00 3,120.00

Total (Other Credits) 315,090.00 530,180.00 695,270.00 810,360.00

Total 389,938.75 679,877.47 910,198.35 1,090,519.24

5. Interest costs for financial leases are shown in Table 9.

Table 9: Financial Leasing Costs

01.01.-31.03. 01.01.-30.06. 01.01.-30.09. 01.01.-31.12.

Equipment_9675 84,514.60 169,029.19 253,543.79 338,058.38

Equipment_84963 93,590.28 187,180.56 280,770.83 374,361.11

Equipment_2367 93,448.85 160,043.57 226,638.29 293,233.01

Equipment_16789 87,391.26 174,782.52 262,173.78 349,565.04

Total 358,944.99 691,035.84 1,023,126.69 1,355,217.54

Proforma Cash Flow Statement

The proforma cash flow statement is shown in Table 10. Cash inflows from previous contracts result from

the completed operations in Kocaeli and Ismir. The claims will be collected in March and August. The payments for

crushed stone, fuel oil and gas oil are made three months after delivery, whereas the payment for bitumen 50/70 is

made in the month of the delivery.

Table 10: Cash Flow Statement

01.01.-31.03. 01.01.-30.06. 01.01.-31.09. 01.01.-31.12. 2012

Asphalt sales 4,390,400.00 15,446,480.00 28,288,896.00 35,822,499.20 37,611,635.25

Previous contracts 1,400,000.00 1,400,000.00 3,000,000.00 3,000,000.00 0.00

Shareholders (collecting receivables) 925,521.57 925,521.57 1,551,043.15 2,176,564.72 350,000.00

Capital increase 500,000.00 500,000.00 500,000.00 1,000,000.00 1,000,000.00

Total Cash Inflows 7,215,921.57 18,272,001.57 33,339,939.15 41,999,063.92 38,961,635.25

Cost of services sold (cash) 4,016,885.36 11,175,182.18 19,435,857.60 27,404,243.76 29,108,014.41

Repayment of debts (previous periods) 1,700,000.00 4,650,000.00 8,250,000.00 9,070,000.00 5,720,000.00

Repayment of bank credits 972,162.00 1,944,324.00 2,916,486.00 3,798,648.00 2,199,571.15

Financial leasing payments 149,560.41 437,492.01 863,794.80 1,428,468.77 1,490,739.29

Total Cash Outflows 6,838,607.77 18,206,998.19 31,466,138.40 41,701,360.53 38,518,324.85

Net increase (decrease) in cash and cash

equivalents 377,313.80 65,003.39 1,873,800.75 297,703.39 443,310.40


The budget will be measured quarterly to ensure targets are met. The budget will be managed mainly by

controlling the development of expenses since they are easier to affect by economy measures than revenues.

Tolerance rate for budget control is set at three percent. If a three percent positive or negative variance is

identified in budgeted revenues or expenses, the reasons for the variance will be analysed thoroughly.

Once the reasons for the variance are identified, appropriate measures will be taken to correct the variance

or if the variance cannot be corrected, the budget will be revised.http://creativecommons.org/licenses/by/3.0/http://www.cluteinstitute.com/

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Case studies showing the preparation of improvement projects for insolvent companies are very scarce, so

this case fills an important gap. This case was prepared for students to show that the improvement project should

include reasons for insolvency, planned measures, and their timing. Furthermore, the financial effects of the

measures to be taken should also be shown by preparing budgets and proforma financial statements in order to

emphasise the seriousness and the feasibility of the project.


1. What could Science Construction PLC have done in order to avoid bankruptcy?

2. Assume that you are a debtor of Science Construction PLC and the company has given you this project. Is

there any additional financial or non-financial information that you would like to receive? What would you

like to see in an improvement project as a debtor?

3. What problems could Science Construction PLC face when they implement the measures explained in the

project? What should management do to execute the project effectively?

4. The project has to be approved by the court in order to get a bankruptcy postponement. The court expert

writes a report on the project if the plan is serious and feasible. Assume that you are the court expert for the

improvement project of Science Construction PLC. What would you write in your report?


Mert Erer is an Associate Professor of Accounting at Marmara University. He primarily teaches international

financial reporting and financial analysis. He has published in the areas of financial reporting, corporate governance

and corporate restructurings. E-mail: [email protected]http://www.cluteinstitute.com/http://creativecommons.org/licenses/by/3.0/mailto:[email protected]

Journal of Business Case Studies – May/June 2013 Volume 9, Number 3

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