[Get Answer ]-Final Paper Accounting 2
Focus of the Final PaperYou’ve just been hired onto ABC Company as the corporatecontroller. ABC Company is a manufacturing firm that specializes inmaking cedar roofing and siding shingles. The company currently hasannual sales of around $1.2 million, a 25% increase from the previousyear. The company has an aggressive growth target of reaching $3 millionannual sales within the next 3 years. The CEO has been trying to findadditional products that can leverage the current ABC employee skillsetas well as the manufacturing facilities.
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As the controller of ABC Company, the CEO has come to you with a newopportunity that he’s been working on. The CEO would like to use thesome of the shingle scrap materials to build cedar dollhouses. Whilethis new product line would add additional raw materials and be moretime-intensive to manufacture than the cedar shingles, this new productline will be able to leverage ABC’s existing manufacturing facilities aswell as the current staff. Although this product line will requireadded expenses, it will provide additional revenue and gross profit tohelp reach the growth targets. The CEO is relying on you to help decidehow this project can be afforded Provide details about the estimatedproduct costs, what is needed to break even on the project, and whatlevel of return this product is expected to provide.
In order to help out the CEO, you need to prepare a six- to eight-pagereport that will contain the following information (including exhibits,but excluding your references and title page). Refer to the accompanyingExcel spreadsheet (available through your online course) for somespecific cost and profit information to complete the calculations.
Final Paper 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 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 Companycan provide internally (either now or sometime throughout the life ofthe project), how would you suggest the company obtain the additionalfinancing, equity or corporate debt, and why?III. Product cost: ABC Company believes thatit has an additional 5,000 machine hours available in the currentfacility before it would need to expand. ABC Company uses machine hoursto allocate the fixed factory overhead, and units sold to allocate thefixed sales expenses. Bases on current research, ABC Company expectsthat it will take twice as long to produce the expansion product as itcurrently 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 fixedfactory and sales expenses. How much cheaper does this expansion makethe 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 companyhas the option to purchase additional equipment that will cost about$42,000, and this new equipment will produce the following savings infactory 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 anddesires 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 impactthe factory’s fixed costs for each of the 5 years (and the impliedproduct costs)? What about cash flow?
c. Considering the cash flow impact of the equipment as well as thetime-value of money, would you recommend that ABC Company purchases theequipment? 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 Final Paper
1. Must be six to eight double-spaced pages in length, and formattedaccording 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 submitted3. 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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