ACC 206 Week 5 Assignment Final Paper (New)



You’ve just been hired onto ABC
Company as the corporate controller. ABC Company is a manufacturing firm that
specializes in making cedar roofing and siding shingles. The company currently
has annual sales of around $1.2 million, a 25% increase from the previous year.
The company has an aggressive growth target of reaching $3 million annual
sales within the next 3 years. The CEO has been trying to find additional
products that can leverage the current ABC employee skillset as well as the
manufacturing facilities.    



As the controller of ABC Company, the CEO has come to you with a new
opportunity that he’s been working on. The CEO would like to use the some of
the shingle scrap materials to build cedar dollhouses. While this new product
line would add additional raw materials and be more time-intensive to
manufacture than the cedar shingles, this new product line will be able to
leverage ABC’s existing manufacturing facilities as well as the current staff.
Although this product line will require added expenses, it will provide
additional revenue and gross profit to help reach the growth targets. The CEO
is relying on you to help decide how this project can be afforded  Provide
details about the estimated product costs, what is needed to break even on the
project, and what level of return this product is expected to provide.



In order to help out the CEO, you need to prepare a six- to eight-page report
that will contain the following information (including exhibits, but excluding
your references and title page). Refer to the accompanying Excel spreadsheet
(available through your online course) for some specific cost and profit
information to complete the calculations.



Final Paper Spreadsheet



1.    
An overall risk profile of the company based on current
economic and industry issues that it may be facing.

 

2.    
Current company cash flow

 

a.    
You need to complete a cash flow statement for the company using
the direct method.

b.   
Once you’ve completed the cash flow statement, answer the
following questions:

                                     
i.       
What does this statement of cash flow tell you about the sources
and uses of the company funds?

                                    
ii.       
Is there anything ABC Company can do to improve the cash flow?

Can this project be financed with current cash flow from the company? Why or
why not?

                                   
iii.       
If the company needs additional financing beyond what ABC Company
can provide internally (either now or sometime throughout the life of the
project), how would you suggest the company obtain the additional financing,
equity or corporate debt, and why?

 

3.    
Product cost: ABC Company believes that it has an additional 5,000
machine hours available in the current facility before it would need to expand.
ABC Company uses machine hours to allocate the fixed factory overhead, and
units sold to allocate the fixed sales expenses. Bases on current research, ABC
Company expects that it will take twice as long to produce the expansion
product as it currently takes to produce its existing product.

a.    
What is the product cost for the expansion product under
absorption and variable costing?

b.   
By adding this new expansion product, it helps to absorb the fixed
factory and sales expenses. How much cheaper does this expansion make the
existing product?

c.    
Assuming ABC Company wants a 40% gross margin for the new product,
what selling price should it set for the expansion product?

d.   
Assuming the same sales mix of these two products, what are the
contribution margins and break-even points by product?

 

4.    
Potential investments to accelerate profit: ABC company has the
option to purchase additional equipment that will cost about $42,000, and this
new equipment will produce the following savings in factory overhead costs over
the next five years: 



Year 1, $15,000

Year 2, $13,000

Year 3, $10,000

Year 4, $10,000

Year 5, $6,000



ABC Company uses the net-present-value method to analyze investments and
desires a minimum rate of return of 12% on the equipment.

a.    
What is the net present value of the proposed investment (ignore
income taxes and depreciation)?

b.   
Assuming a 5-year straight-line depreciation, how will this impact
the factory’s fixed costs for each of the 5 years (and the implied product
costs)? What about cash flow?

c.    
Considering the cash flow impact of the equipment as well as the
time-value of money, would you recommend that ABC Company purchases the
equipment? Why or why not?

 

5.    
Conclusion:

 

a.    
What are the major risk factors that you see in this project?

b.   
As the controller and a management accountant, what is your
responsibility to this project?

c.    
What do you recommend the CEO do?


Writing the Final Paper


1.    
Must be six to eight double-spaced pages in length, and formatted
according to APA style as outlined in the Ashford Writing
Center.

2.    
Must include a title page with the following:

a.    
Title of paper

b.   
Student’s name

c.    
Course name and number

d.   
Instructor’s name

e.    
Date submitted

3.    
Must begin with an introductory paragraph that has a succinct
thesis statement.

4.    
Must address the topic of the paper with critical thought.

5.    
Must end with a conclusion that reaffirms your thesis.

6.    
Must document at least three, but no more than five sources in APA
style, as outlined in the Ashford
Writing Center.

7.    
Must include a separate reference page, formatted according to APA
style as outlined in the Ashford
Writing Center.

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