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ACC 206 Week 5 Assignment Final Paper - New
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 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?
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. 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?

3. 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?
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 all 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.