Reference no: EM134284

Question

I) Current company cash flow

a) You require to complete a cash flow statement for the company using the direct method

II) Product cost: ABC Company trusts that it has an additional 5,000 machine hours available in the current facility previously it would need to expand. ABC Company uses machine hours to assign the fixed factory overhead and units sold to allocate the fixed sales expenses. Bases on current study ABC Company expects that it will take double as long to produce the expansion product as it currently takes to produce its existing product.

a) What is the product cost for the extension product under absorption and variable costing?

b) By adding this new expansion product, it assistances to absorb the fixed factory and sales expenses. How much inexpensive does this expansion make the existing product?

c) Assuming ABC Company wants a 40% gross boundary for the new product what selling price should it set for the expansion product?

d) Presumptuous the same sales mix of these two products, what are the contribution margins and break-even points by product?

III) Possible investments to accelerate profit- ABC company has the option to purchase additional equipment that will cost about $42000 as well as 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 way to analyze investments and desires a minimum rate of return of 12% on the equipment

a) What is the net present value of the planned investment (ignore income taxes and depreciation)?

b) Presumptuous a 5-year straight-line depreciation how will this impact the factory's fixed costs for each of the 5 years as well as 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?

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.)