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ACC 206 Final ABC company report-Original and Fresh






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ACC 206 Final ABC company report-Original and Fresh
ABC Company, the manufacturing firm specializes in making cedar roofing and siding shingles.
The company is currently producing 80000 units of its current product and trying to find
additional products that will lever the current employees’ skill and the manufacturing facilities
existing in the firm. Currently it has annual sales around 1.2 million dollar and is targeting to
reach 3 million dollar sales within the next three years. As the controller of this company I see
the CEO is working on a new opportunity to produce cedar dollhouses by using some of the
shingle scarp materials. The new production will require additional raw materials and machine
hours and will provide leverage and additional revenue and gross profit
Overall Risk Profile
Current economic and industry issues facing ABC Company: Numerous risks can
arise from the economic and industry issues in any country. A manufacturing company, like ABC
Co., can get hurt by many economic and industry risk factors. Those factors may be:
The rise in the raw materials price needed to expand new projects
More time intensive new product can lead to the lapsing of the deadlines for construction
The production process for the new product may be disrupted by adverse economic
Many existing or new competitors may take the competitive advantage from learning and
experiencing the ABC’s lesson
Potential loss of key personnel, dramatic change in the political regime and also the
occurrence of a heavy natural disaster can threat the company severely
According to the recent available information the US is facing economic disaster. The production
of new and existing sustainable products is not enough in US. The country is importing much
more than exporting and also engaged in selling off assets and taking on massive debts to sustain
standard of living. The international competitors are planning to render our country to be
completely dependent on foreign production. As a consequence US firms will lose domestic self-
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sufficiency, national security and leverage. The US manufacturers are encouraged to design,
engineer and produce in the third world markets like Mexico and China.
Current Company Cash Flow
Sources and uses of the company’s Cash Flows: The calculation of ABC co.’s Cash
Flow statement involves cash receipts and cash payments in three categories as, operating,
investing, and financing activities. This calculation tells that the ABC co. enjoyed a cash flow
provided from operations of about $27,000 in year 19X2, when reported income after tax was
$12,000. The statement also shows that ABC co. used more cash in investing activities and
financing activities than was provided from those sources. The net cash flows from ABC co’s
business were positive, $14,000. For ABC co. net income is the primary source of cash flow, the
company used the cash flow from operating activities to invest in equipment and payment of
Improvement of cash flow: To improve further, the cash flows, the ABC co. can invest
more in other firms’ securities of debts to earn more cash proceeds in return. It can also issue
more common stock to collect funds to invest in more profitable sectors or to involve more
production activities by expanding its manufacturing activities.
Project financing: This project cannot be fully financed with the current level of cash flow
from the company. Because the new project would need additional raw materials as well as more
time to manufacture. So the new project will require more funds to be invested in and more labor
force to produce effectively to supply in time delivery.
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Additional financing: As the company will need additional financing beyond what ABC
Company can provide internally, the company can obtain the additional financing by issuing
equity or corporate debt. The choice of which security to sell at a particular time is contingent on
a number of issues as, firms capital structure, current market condition, effect of taxes, the risk to
the firm of excessive levels of debt, agency cost and the likely impact of the security’s issuance
on existing stockholders.
Product Cost
New Product Cost: The total production cost for the expansion product is $54,000, for
additional 5000 unit, and the per unit production cost for expansion product is $10.8 (as no fixed
cost is required).
Impact of expansion: By adding this new expansion product, it helps to absorb the fixed
factory and sales expenses. The per unit production cost of current product was $9.666, before
adding the new product. But the cost of new expansion product was higher than the cost of
current product. Ultimately the addition of new expansion product with the current product
causes the average total cost increase slightly to $9.732. Hence the total per unit cost of a current
product and a new expansion product is $19.465, which makes the existing product cost
$8.665/unit. So this expansion makes the existing product cheaper by $1.001.
Selling price: If ABC Company wants a 40% gross margin for the new product, they should
sell the new expansion product for $15.12 per unit.
Contribution margin and break-even point: Assuming the same sales mix of these
two products, the contribution margin of current production is $7.2 and the contribution margin
of the total expected production (current + expansion) is $7.03 per unit, as shown in the
following graph:
  
 
  
    
ACC 206 Final Paper ABC company

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This is great! Exactly what I wanted.