You’ve just been hired onto ABC Company as the corporate controller.

Ashford 6: – Week 5 – Final Paper

Final 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.
Final Paper Spreadsheet

  1. An overall risk profile of the company based on      current economic and industry issues that it may be facing.
  2. Current company cash flow
    1. You need to complete a cash flow statement for the       company using the direct method.
    2. Once you’ve completed the cash flow statement, answer       the following questions:
      1. What does this statement of        cash flow tell you about the sources and uses of the company funds?
      2. Is there anything ABC Company        can do to improve the cash flow?
        Can this project be financed with current cash flow from the company?        Why or why not?
      3. 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?
  3. 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.
    1. What is the product cost for the expansion product       under absorption and variable costing?
    2. 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?
    3. Assuming ABC Company wants a 40% gross margin for the       new product, what selling price should it set for the expansion       product?
    4. Assuming the same sales mix of these two products,       what are the contribution margins and break-even points by product?
  4. 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. What is the net present value of the proposed       investment (ignore income taxes and depreciation)?
    2. 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?
    3. 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?
  5. Conclusion:
    1. What are the major risk factors that you see in this       project?
    2. As the controller and a management accountant, what is       your responsibility to this project?
    3. 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:
    1. Title of paper
    2. Student’s name
    3. Course name and number
    4. Instructor’s name
    5. 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 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 Grading Rubric for the criteria that will be used to evaluate your assignment.

 

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