Question;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;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 time-value;of money, would you recommend that ABC Company purchases the equipment? Why or;why not?
Paper#41505 | Written in 18-Jul-2015Price : $37