Assignment:
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.
For the Final Paper make sure the content and written paper contain EACH of the following. Two major points: 1) you are to conduct scholarly research. This means no yahoo or Google finance, Wikipedia, Investopedia, blogs, etc. and only use creditable sources for your research. 2) You must include your Scholarly Research in References and include citations. If you fail to include these two things your paper will be significantly impacts in the content areas. If there are no references or citations then the authority of your paper will be impacted. Quality Research (at least three, but no more than five Scholarly Research sources) and References/Citations.
Use this as a checklist to assure you have all content and writing aspects in your paper:
Content (provide in written format in a formal scholarly paper):
Part 1. Introduction and Outline the risk profile of the company.
Part 2. Company Cash Flow
a. Complete a cash flow statement for the company using the direct method.
b. 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?
Part 3. Product cost problem for the company. Answer these questions.
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 point by product?
Part 4. Potential investments to accelerate profit scenario. Answer the questions.
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?
Part 5. 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 aspects of final paper:
1. Must be six to eight double-spaced pages in length, and formatted according to APA style as outlined.
2. Must include a title page with the following:
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 Scholarly Research sources in APA style as outlined.
7. Must include a separate reference page, formatted according to APA style as outlined.
Use Appendix C for a single payment of present value. For instance I will have a dollar in one year. If the discount rate is $1 and of course it is one year, what is the value of that $1 today (it is something less that $1). The key is a single payment.
Use Appendix D when there are a series of payments. For instance, I have $10 and want to receive equal payments from that for 5 years and I will get 5% interest each year. What would my payment be? Appendix D is Present Value of an annuity, which you can use if the amount is the exact same for a set term: $100 for 5 years. You can use this rather than the individual years, but the total of he five factors for those five years would total the factor in Appendix D.