ACC 206 Week 5 Final Paper ABC Company Cedar Roofing Report Latest
You’ve just been hired by 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 three 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, with at least three, but no more than five scholarly sources, 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.
1. I. An overall risk profile of the company based on current economic and industry issues that it may be facing
2. II. Current company cash flow
1. a. You need to complete a cash flow statement for the company using the direct method.
2. b. Once you’ve completed the cash flow statement, answer the following questions:
1. i. What does this statement of cash flow tell you about the sources and uses of the company funds?
2. 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?
1. 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. Based 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.
1. a. What is the product cost for the expansion product under absorption and variable costing?
2. b. Assuming ABC Company wants a 40% gross margin for the new product, what selling price should it set for the expansion product?
3. c. Assuming the same sales mix of these two products, what are the contribution margins and break-even points by
2. 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.
1. a. What is the net present value of the proposed investment (ignore income taxes and depreciation)?
2. 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?