ACC 206 Week 5 Assignment Final Paper

Focus of the Final Paper

Youve just been hired onto ABC Company as the corporate controller. ABC Company i
s a manufacturing firm that specializes in making cedar roofing and siding shing
les. The company currently has annual sales of around $1.2 million, a 25% increa
se from the previous year. The company has an aggressive growth target of reachi
ng $3 million annual sales within the next 3 years. The CEO has been trying to f
ind additional products that can leverage the current ABC employee skillset as w
ell as the manufacturing facilities.

As the controller of ABC Company, the CEO has come to you with a new opportunity
that hes been working on. The CEO would like to use the some of the shingle scra
p materials to build cedar dollhouses. While this new product line would add add
itional raw materials and be more time-intensive to manufacture than the cedar s
hingles, this new product line will be able to leverage ABCs existing manufacturi
ng facilities as well as the current staff. Although this product line will requ
ire 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 proj
ect 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 ex
pected to provide.

In order to help out the CEO, you need to prepare a six- to eight-page report th
at will contain the following information (including exhibits, but excluding you
r references and title page). Refer to the accompanying Excel spreadsheet (avail
able through your online course) for some specific cost and profit information t
o 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 m
ethod.
b. Once youve 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?
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 o
r why not?
iv. If the company needs additional financing beyond what ABC Company can provid
e internally (either now or sometime throughout the life of the project), how wo
uld 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 Comp
any uses machine hours to allocate the fixed factory overhead, and units sold to
allocate the fixed sales expenses. ABC Company expects that it will take twice
as long to produce the expansion product as it currently takes to produce its ex
isting product.
a. What is the product cost for the expansion product?
b. By adding this new expansion product, it helps to absorb the fixed factory an
d 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 selli
ng 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 pu
rchase 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 factor
ys fixed costs for each of the 5 years (and the implied product costs)? What abou
t cash flow?
c. Considering the cash flow impact of the equipment as well as the time-value o
f money, would you recommend that ABC Company purchases the equipment? Why or wh
y 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 accordin
g to APA style as outlined in the Ashford Writing Center.
2. Must include a title page with the following:
a. Title of paper
b. Students name
c. Course name and number
d. Instructors name
e. Date submitted
3. Must begin with an introductory paragraph that has a succinct thesis state
ment.
4. Must address the topic of the paper with critical thought.
5. Must end with a conclusion that reaffirms your thesis.
6. Must document all sources in APA style, as outlined in the Ashford Writing
Center.
7. Must include a separate reference page, formatted according to APA style a
s outlined in the Ashford Writing Center.

Carefully review the Grading Rubric for the criteria that will be used to eval
uate your assignment.
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