Focus of the Final Paper
Youâ€™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
As the controller of ABC Company, the CEO has come to you with a
new opportunity that heâ€™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 ABCâ€™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.
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 youâ€™ve completed the cash flow statement, answer the
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?
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. 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
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 factoryâ€™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?
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
2. Must include a title page with the following:
a. Title of paper
b. Studentâ€™s name
c. Course name and number
d. Instructorâ€™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
5. Must end with a conclusion that reaffirms
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.
Carefully review the .waypointoutcomes.com/assessment/3031/preview”>Grading Rubric for the criteria that will
be used to evaluate your assignment.