Acc 206 week 5
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 - not enough characters given to supply this information.
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?
ABC Company's current financial information (before/without expansion)
Dec. 31,20X2 Dec. 31,20X1
Cash $50,000 $70,000
Accounts receivable (net) $120,000 $180,000
Merchandise inventory $350,000 $280,000
Property plant, & equipment $400,000 $300,000
Less: Accumulated depreciation ($170,000) ($100,000)
Total assets $750,000 $730,000
Accounts payable $250,000 $210,000
Income taxes payable $40,000 $10,000
Common stock $240,000 $240,000
Retained earnings $220,000 $270,000
Total liabilities & stock, equity $750,000 $730,000
The firm's accrual-basis income statement revealed the following data:
Sales $1,200,000
Cost of goods sold $800,000
selling and administrative expenses $250,000
Depreciation expense $70,000
Income taxes $30,000
Dividends declared and paid during 19X2 $100,000
ABC purchased $100,000 of equipment for cash on August 14.
(There was no interest expense.)
