Final Acc 206

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 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 all 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.

 

ABC Co Consolida Financial Info

payable

$ 240,000

$ 750,000 $ 730,000

$ 250,000

$ 70,000

Income taxes

		ABC Company’s current financial information (before/without expansion)
Dec. 31,19X2	Dec. 31,19X1
Cash	$ 50,000		$ 70,000
Accounts receivable (net)	$ 120,000	$ 1	80,000
Merchandise inventory	$ 350,000	$ 280,000
Property plant, & equipment	$ 400,000	$ 300,000
Less: Accumulated depreciation	$ (170,000)	$ (100,000)
Total assets		$ 750,000		$ 730,000
Accounts payable		$ 250,000	$ 210,000
	Income taxes	$	40,000	$ 10,000
Common stock		$ 240,000
Retained earnings	$ 220,000	$ 270,000
Total liabilities & stock, equity
The firm’s accrual-basis income statement revealed the following data:
Sales	$ 1,200,000
Cost of goods sold	$ 800,000
selling and administrative expenses
Depreciation expense
$ 30,000
Dividends declared and paid during 19X2	$ 100,000
ABC purchased $10,000 of equipment for cash on August 14.
(There was no interest expense.)

ABC Co Product information

80,000

40,000 5,000

$1.00 per Machine Hour

$0.20 per unit

Based on Chapter 5’s exercise 5
ABC’s Product information
Current Product	Expansion Product (estimate)
Selling Price	$14.50	?
Units produced and expected to be sold		5,000
Machine Hours
Direct Materials	$1.30 per unit	$5.60 per unit
Direct labor dollars needed per product	$2.80 per unit	$4.00 per unit
Variable Factory Overhead		$1.00 per Machine Hour
Variable Selling Expense		$0.20 per unit
Total Fixed Costs:
Fixed Factory Overhead	$ 198,000
Fixed Selling expenses	$ 191,250