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Question # 00084231
Subject: Accounting
Due on: 08/22/2015
Posted On: 07/23/2015 07:41 AM

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Focus of the Paper

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.

See attached for excel spreadsheet.

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

II. 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?
ii. Is there anything ABC Company can do to improve the cash flow?
iii. Can this project be financed with current cash flow from the company? Why or why not?
iv. 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?

III. 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. 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?
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?

IV. 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?

V. 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 Paper

1. Must be six to eight double-spaced pages in length, and formatted according to APA style

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 all sources in APA style
7. Must include a separate reference page, formatted according to APA style

Tutorials for this Question
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Tutorial # 00078889
Posted On: 07/23/2015 07:41 AM
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Tutorial Preview …option xx purchase xxxxxxxxxx equipment that xxxx cost about xxxxxxxx and xxxx xxx equipment xxxx produce the xxxxxxxxx savings in xxxxxxx overhead xxxxx xxxx the xxxx five years: xxxx 1, $15,000 xxxx 2, xxxxxxx xxxx 3, xxxxxxx Year 4, xxxxxxx Year 5, xxxxxx ABC xxxxxxx xxxx the xxxxxxxxxxxxxxxxx method to xxxxxxx investments and xxxxxxx a xxxxxxx xxxx of xxxxxx of 12% xx the equipment x What xx xxx net xxxxxxx value of xxx proposed investment xxxxxx income xxxxx xxx depreciation? x Assuming a xxxxxx straight-line depreciation, xxx will xxxx xxxxxx the xxxxxxxxxxx fixed costs xxx each of xxx 5 xxxxx xxxx the xxxxxxx product costs)? xxxx about cash xxxxx c xxxxxxxxxxx xxx cash xxxx impact of xxx equipment as xxxx as xxx xxxxxxxxxx of xxxxxx would you xxxxxxxxx that ABC xxxxxxx purchases xxx xxxxxxxxxx Why xx why not? x Conclusion: a xxxx are xxx xxxxx risk xxxxxxx that you xxx in this xxxxxxxx b xx xxx controller xxx a management xxxxxxxxxxx what is xxxx responsibility xx xxxx…
181582_21628_1_TM_C_TTs100313-66016-25.docx (31.3 KB)
Preview: finance xxx investment xxxxx for improvement xx cash flowsThe xxxx flows xxxx xxx debtors xxx be managed xxxxxxxxxxx by implementing xxxxxx techniques xxxx xxxxxx discount xx early payments, xxxxxxx them reminders xxxx the xxxxxxx xxxx due xxx company shall xxxxxxxx its payment xxxxxx by xxxxxxxxx xxxxx cards, xxxxxxx etc for xxxxxxx purposes The xxxxxxx can xxxxxxxxx xxxx factoring; xxxxxx worthiness of xxx client shall xx evaluated xxxxxx xxxxxxxx credit xx the same xxxx the company xxxxx try xx xxxx the xxxxxxxxx of all xxx benefits provided xx supplier xxxxxxxxx xxxxxxxxxx company xxxx not sufficient xxxxxxx cash flow xx as xx xxxxxxx the xxxxxxxxx project The xxxxxxx can consider xxx options xx xxxxxxxxx debt xxx equity The xxxxxxxx of taking xxxx are xxxx xxx ownership xxx be maintained xxx the interest xxxx on xxxx xxxxxxxx tax xxxxxxxxx The disadvantage xx taking debt xx that xxx xxxxxxxxx amount xx required to xx repaid and xx becomes xx xxxxxxxxxx on xxx borrower The xxxxxxx of equity xxxxxxxxx is xxxx xxx money xxxxxxxx is not xxxxxxxx to be xxxxxx The xxxxxxxxxxxx xx taking xxxx is that xx results in xxxx of xxxxxxxxx xxx it xxxxxxxx complex paper xxxx Statement Showing xxxxxxx Cost xxx xxx Expansion xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx produced and xxxxxxxx to be xxxxxxxx unitsMachine xxxxxxxxx xxxxxxxxxxx Material5 xx x 500028,000Direct xxxxxx 00 x xxxxxxxxxxxxxxxxx Overhead xxxxxxxxx xx x xxxxxxxxx Fixed -Selling xxxxxxxx Variable0 20 x 50001,000 xxxxx xxxxxx Cost54,000Statement xxxxxxx Total Cost xx Existing Product, xxxxxxxxx Product xxx xxxxxxx cost xx ProductsParticularsExistingExpansionTotalUnits produced xxx expected to xx sold80,000 xxxxxxxxxx xxxxxxxxxxx unitsMachine xxxxxxxxxxx units5,000 Hours45,000 xxxxxxxxxxx Material104,00028,000Direct Labour22400020,000Variable xxxxxxx Overhead400005,000Variable xxxxxxx.....
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