Description
In this project, you will demonstrate your mastery of the following competency:
- Apply foundational managerial accounting concepts to make management decisions
Scenario
You have been hired as a financial manager for the U.S. division of a multinational manufacturing company, Ace Green, Inc. The company makes energy management equipment, such as meters and load balancers for solar energy installations. In your role, you create budgets, monitor and analyze financial results and forecasts, and make recommendations for short-term and long-term actions. The division’s chief financial officer, Clara Kennedy, has asked you to provide some financial insight to inform business decisions for the upcoming year.
Company Overview
Ace Green, Inc.’s U.S. division employs approximately 150 people and is based in an industrial complex just outside of a major city. The company provides the following products and services:
- Energy management equipment, such as photovoltaic panels, meters, and load balancers for solar energy installations
- Installation and maintenance services
- Consulting services to help its clients optimize their energy use and minimize costs
Business Decisions
The company is considering expanding its operations by hiring 50 additional employees and expanding its facilities as a result of higher expected demand. The expected Return on Investment (ROI) for this project is 15%, based on the increased production and number of additional clients that the organization will be able to accommodate. Clara is looking for your advice to explain the impact of ROI and similar investment evaluation criteria on management decisions, and to inform her about what other factors might need to be considered based on financial information.
Financial Information
Reference the Ace Green, Inc. summary income statement.
Directions
Your financial report and business memo will help Clara to make an informed decision that moves the company forward. Your deliverables will include a financial report with completed financial information and a business memorandum. In addition to preparing financial information to inform business decisions, be sure to speak to considerations related to expanding operations. Use the financial report template to complete the appropriate financial information, then use the financial information to inform the business memorandum.
Business Memorandum: The business memorandum will explain business implications of the financial information using the Ace Green, Inc. summary income statement. Remember that your audience does not have a strong financial knowledge base, so your explanations should be clear and thorough.
- Day-to-Day Business Decisions: The first element of your memorandum will discuss how financial information informs decisions about day-to-day operations.
- Describe managerial accounting, specifically highlighting its use in informing business decisions in day-to-day operations. Begin by defining managerial accounting, then highlight key concepts that management will find useful for decision making.
- Explain cost behavior for informing business decisions using managerial accounting terminology. Use the Ace Green, Inc. summary income statement to inform your response. Specifically, address the impacts of the following:
- How is the categorization of costs into variable, fixed, and mixed categories affected by the time horizon?
- How is the categorization of costs into variable, fixed, and mixed categories affected by the time horizon?
- Briefly define the various unit costing methods in common use, such as job order, process, and activity-based. Where is each costing method most appropriate?
- Explain basic cost concepts for informing management decisions using the contribution approach. Specifically, Include the following in your response:
- How do costs and volume affect profit? Use the Ace Green, Inc. summary income statement to inform your response with specific examples.
- Explain gross margin percentages and their business implications, stating the formula. Use the Ace Green, Inc. summary income statement to inform your response with specific examples.
- Describe breakeven analysis and its business implications.
- Explain margins for informing management decisions, specifically highlighting any significant changes in margin. Include the following:
- Explain gross income and margin, operating income and margin, and net income and margin for their purpose in informing decision making. Use the Ace Green, Inc. summary income statement to inform your response with specific examples.
- Why might an organization's gross, operating, or net income margin vary seasonally? Use the Ace Green, Inc. summary income statement to inform your response with specific examples.
- If Ace Green, Inc. commits to the proposed major staffing and facility expansion, would you expect negative margins in the first year or two? Why?
- What actions could a company take to improve its margins?
- Explain the difference between gross, operating, and net income.
- Discuss three key observations you would want to bring to management’s attention based on specific examples. Consider notable ratios or trends and provide specific examples from the summary income statement.
- Describe managerial accounting, specifically highlighting its use in informing business decisions in day-to-day operations. Begin by defining managerial accounting, then highlight key concepts that management will find useful for decision making.
- Long-term investment decisions: The second element of your business memorandum will discuss long-term investment decisions.
- Explain the impact of ROI on management decisions. Specifically, support your response using the business decisions information in the scenario and appropriate financial information. Include the following:
- What does the ROI information tell management, and are there other factors that should be considered from a financial perspective?
- Explain the impact of ROI on management decisions. Specifically, support your response using the business decisions information in the scenario and appropriate financial information. Include the following:
What to Submit
Every project has a deliverable or deliverables, which are the files that must be submitted before your project can be assessed. For this project, you must submit the following:
Business Memorandum
The business memorandum should be 3-5 pages in length, and it should explain how the information in the summary income statement informs management decisions. Include the Ace Green, Inc. summary income statement that you used to inform your ideas.
Resource Type: Ace Green, Inc. summary income statement- attached down below!!
Use this to inform your business memorandum.
Reference List For each source that you cite, you need to include the author’s name, the publication year, the title of the source, and the location of the source in a References section at the end of your work. Cite all sources appropriately.
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Explanation & Answer
Please find attached memorandum and the respetive outline. Go through the files and send me your feedback. In case you need any adjustmens, do not hesitate to get in touch and I will be glad to revise the task accordingly..
Impact of Return on Investment Analysis on Business Performance; Case Study on Ace
Green Incorporation
Subject: How Return on Investment Influences Management Decision of Green Ace
Incorporation
Outline
Introduction
•
Return on investment helps Green incorporation to implement appropriate financial
information to assist the company obtain a 15% return on investment.
•
Increase of the number of employees by 50.
Management Accounting
•
Helps Green Ace incorporation to ascertain cost elements.
•
Preparation of budgets and forecasting of sales revenue and costs.
•
Help in fixing prices and determining the cost inputs.
Cost Behavior
•
Fixed costs are costs that are partly constant in the short-run and increase in the long-run
while variable costs are cost that increase per unit output.
Costing Methods
•
Activity cost costing
•
Job order costing
•
Process costing
Contribution margins
•
Operating margin
•
Net contribution margin
•
Return on investment
Observation of financial reports
•
Critical in decision making
•
Identification of cost gaps
Long-term financial decision
•
Improve financial efficiency and effectiveness.
1
Impact of Return on Investment Analysis on Business Performance; Case Study on Ace
Green Incorporation
Student name
Lecturer
Institution
Date of submission
2
Impact of Return on Investment Analysis on Business Performance; Case Study on Ace
Green Incorporation
To: Green Ace Incorporation Management Team
From: Name……, Financial Manager
Subject: How Return on Investment Influences Management Decision of Green Ace
Incorporation
Return on investment is the measure of effectiveness of utilizing organizational resources
to increase the output and the total revenue of the company. Ace Green incorporation would like
to increase its investment project by increasing the number of employees by 50 expecting an
improved return on the investment to about 15%. Effective utilization and efficiency of utilizing
the organizational assets and inputs will improve the contribution margin resulting to increased
return on the investment (Scott, 2018). Additional of skilled employees will improve effective
use of scarce economic resources that are used to produce goods and services. Management
accounting assists the organization to unravel important decisions before implementing the new
project.
Management Accounting
Management accounting is critical to aiding Ace Green incorporation to determine the
feasibility of a business investment (Scott, 2018). Some of the benefits accrued to the study of
management accounting include ascertainment, reduction, and control of production costs,
forecasting and drafting of organizational budgets, providing accounting information which is
essential in fixing of the selling price of goods and services in an organization, interpretation of
financial information which is relevant to financial reporting, and taking important decisions in
an organization. Management accounting helps Green Ace incorporation to predict revenue and
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minimize the operational costs. For instance, the company trend of operating income is 4, 675,
4,923.5, 4,923.5, and 5, 103.4. Management accounting helps Green incorporation to forecast the
sales revenue and the costs to be incurred in expanding the business.
Cost Behavior
Green Ace incorporation has presented the cost behavior in the last 4 years. Cost
behavior is the change of cost patterns depending on the level of activities taking place in an
organization (Scott, 2018). Fixed cost are costs that are constant and are not influenced by the
level of activities taking place in the organization. For instance, the trend of fixed costs in Green
incorporation is 800, 848, 848, and 873.4. The trend depicts that the fixed cost is irrelevant to the
total production of Green Ace incorporation. Variable costs are costs incurred to produce units of
products for resale (Scott, 2018). Variable costs are directly proportional to the total output
which is manufactured for resale. The trend of variable cost in Green Ace incorporation is 3,000,
3135, 3180, and 3278.6. When the variable cost increases, output unit also increases resulting to
reduction of the fixed cost. Manufactured output is spread over the fixed cost thus reducing the
total cost of a business.
Costing Methods
Costing is a technique which is used by manufacturing companies to ascertain the cost of
raw materials sacrificed to produce the final product. Costing methods can be classified as
specific order costing and operations costing (Scott, 2018). Job order costing is basic costing that
involves jobs, contracts, and batches where costs attributed to the order are ascertained. Process
costing is a technique of costing applied in manufacturing companies where the finished
products undergo various stages to be processed to make finished products while activity based
costing is technique used to identify all activities conducted and allocates cost to each activity of
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goods and services produced (Scott, 2018). Costing methods helps an organization to ascertain
exact costs that are sacrificed to produce goods and services in an organization. Green Ace
incorporation can use the information to determine the transfer price of goods and services that
the company sales. For the company to increase return on the capital invested, the business
should minimize the cost while maximizing the profits of the company. Contribution helps the
organization to ascertain the value of the variable cost of the organization. Total revenue minus
the total variable cost is equal to the contribution. Contribution margin is contribution value
divided by the total revenue gained by the business. Green Ace incorporation contribution can be
calculated as:
Total revenue 4,955.5
Total variable cost (3180)
Contribution 1,775.5
Contribution margin helps an organization to determine the available money that an
organization makes in selling the goods and services. Contribution margin helps a...