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Ashford 6: - Week 5 - Final Paper
Final Paper
Focus of the 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 timeintensive 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
I. An overall risk profile of the company based on current economic and
industry issues that it may be facing.
II. Current company cash flow
a. You need to complete a cash flow statement for the company using the
direct method.
b. Once you’ve completed the cash flow statement, answer the following
questions:
i. What does this statement of cash flow tell you about the sources and
uses of the company funds?
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?
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. 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.
a. What is the product cost for the expansion product under absorption and
variable costing?
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 points by product?
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.
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 timevalue of money, would you recommend that ABC Company purchases the
equipment? Why or why not?
V. 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 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:
a. Title of paper
b. Student’s name
c. Course name and number
d. Instructor’s name
e. 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.