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Acc 206 ABC Co. Cash Flow & Project




Acc 206 ABC Co. Cash Flow & Project;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 $1.2M, a 25% increase from the previous year. The company has an aggressive growth target of reaching $3M 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;like would add additional raw materials as well as 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.;While this product line will require added expenses, it will also 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 file for some;specific cost and profit information to complete the calculations.;I. An overall risk profile of the company and the based on current economic and;industry issues that may be facing ABC company.;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?;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?s got 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. 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?;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 they sell the expansion product for?;d. Assuming the same sales mix of these two products, what are the contribution;margin and the break-even point by product?;IV. Potential Investments toaccelerate profit: ABC company has the option to purchase additional equipment that will cost about $42,000, and this new equipment will produce the followingsavings 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?;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?;Based on Chapter 5's;exercise 5


Paper#78210 | Written in 18-Jul-2015

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