The Compass Hospital and Health Center (CHHC) inventories hospital gloves for use in surgery and patient care. The hospital, which operates seven days a week, 52 weeks per year (365 days a year), can consume gloves at the rate of 200 pairs of gloves per day. (Gloves can only be used for one task and must then be discarded because of the risk of contamination.) The hospital uses a continuous inventory system in which gloves are kept in small supply closets spread throughout the facility. When needed, employees go to the nearest supply closet and retrieve a pair of gloves. The gloves’ bar code is simply swiped past a bar code reader along with the bar code of the account of the patient to whom the item is to be charged. The ordering cost for an order of gloves is $200. The cost of holding (carrying) gloves in storage closets is $3 per pair per year. The lead time for receipt of the order of gloves, once the order is transmitted to the supplier, is 10 days without making the order an express shipment.

Reviewing the previous quarter’s financial statements will provide you with data to construct pro forma financial statements for Starbucks and make some basic projections.

Part 1

Use the downloaded data to complete the Income Statement and Balance Sheet on the appropriate tabs in the Financial Forecasting Template. Assume the following: Sales will increase for the next quarter by the same percentage increase from the previous quarter to the last reported quarter. For example, if sales increased 8% from the last quarter to the current reported quarter, you will use 8% as the sales increase for your pro formas. Calculate the expenses to determine what will change and what will remain the same. Note: Not all costs are associated with the cost of sales. It will be up to you to determine which line items need to be increased and which ones need to be left alone. This will require you to distinguish between fixed and variable costs. For a reminder of the difference between fixed and variable costs, please watch the video Business Costs (Fixed Costs and Variable Costs) Explained (Links to an external site.). Within each line item expense explain your rationale, as well as provide a brief summary.