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ACC 206 Complete Course Material

ACC 206 Week 1 Assignment Chapter One Problems

Why are noncash transactions, such as the exchange of common stock a building, included on a
statement of cash flows? How are these noncash transactions disclosed?

Chapter 1 Exercise 1:
1. Classification of activities
Classify each of the following transactions as arising from an operating (O), investing (I),
financing (F), or noncash investing/financing (N) activity.
a.

________ Received $80,000 from the sale of land.

b.

________ Received $3,200 from cash sales.

c.

________ Paid a $5,000 dividend.

d.

________ Purchased $8,800 of merchandise for cash.

e.

________ Received $100,000 from the issuance of common stock.

f.

________ Paid $1,200 of interest on a note payable.

g.

________ Acquired a new laser printer by paying $650.

h.

________ Acquired a $400,000 building by signing a $400,000 mortgage note.

Chapter 1 Exercise 4:
4. Overview of direct and indirect methods
Evaluate the comments that follow as being True or False. If the comment is false, briefly
explain why.
a.
Both the direct and indirect methods will produce the same cash flow from operating
activities.
b.

Depreciation expense is added back to net income when the indirect method is used.

c.
One of the advantages of using the direct method rather than the indirect method is that
larger cash flows from financing activities will be reported.
d. The cash paid to suppliers is normally disclosed on the statement of cash flows when the
indirect method of statement preparation is employed.
e.
The dollar change in the Merchandise Inventory account appears on the statement of cash
flows only when the direct method of statement preparation is used.

Chapter 1 Exercise 6:
6. Equipment transaction and cash flow reporting
New equipment purchased during 204 totaled $280,000. The 204 income statement disclosed
equipment depreciation expense of $41,000 and a $9,000 loss on the sale of equipment.
a.

Determine the cost and accumulated depreciation of the equipment sold during 20X4.

b.

Determine the selling price of the equipment sold.

c.
Show how the sale of equipment would appear on a statement of cash flows prepared by
using the indirect method.

Chapter 1 Problem 3:

3. Cash flow information: Direct and indirect methods

The comparative year-end balance sheets of Sign Graphics, Inc., revealed the following activity
in the companys current accounts:
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ACC 206 Week 1 DQ1 Cash Flows Information

What information does the cash flow statement provide that you cannot see in the other financial
statements (income statement, balance sheet, owners equity)? What elements of the cash flow
statement do you think are most important for company management to monitor and why? Is this
different for investors?
Guided Response:
Review your peers postings. Respond to at least two of classmates, letting them know whether
you agree with the use of the cash flow statement and why. Additionally, share elements of the
cash flow statement that you see as being the greatest interest to investors (as opposed to internal
management) and why.

ACC 206 Week 1 DQ2 Apples Cash Flow

Go to http://finance.yahoo.com. Enter in AAPL and click on the get quote button, and it will
bring up information on Apple. On the left hand side youll see a section on Financials. Within
that section, click on the cash flow. Review the cash flow statement for Apple. How would you
summarize Apples cash flow position and what does this statement tell you about where the
money is coming from and where its going? What would you suggest Apples do to improve its
cash position and why?
Guided Response:
Analyze several of your peers postings. Do you agree with the posting? Let at least two of your
peers know what you would add.

ACC 206 Week 2 Assignment Chapter Two and Three Problems

Please complete the following 7 exercises below in either Excel or a word document (but must
be single document). You must show your work where appropriate (leaving the calculations
within Excel cells is acceptable). Save the document, and submit it in the appropriate week using
the Assignment Submission button.

Chapter 2 Exercise 1
1. Issuance of stock
Prepare journal entries to record the issuance of 100,000 shares of common stock at $20 per
share for each of the following independent cases:
a.

Jackson Corporation has common stock with a par value of $1 per share.

b.

Royal Corporation has no-par common with a stated value of $5 per share.

c.

French Corporation has no-par common; no stated value has been assigned

Chapter 2 Exercise 3
3. Analysis of stockholders equity
Star Corporation issued both common and preferred stock during 20X6. The stockholders equity
sections of the companys balance sheets at the end of 20X6 and 20X5 follow.

20X6
Preferred stock, $100 par value, 10%

$580,000

Common stock, $10 par value

2,350,000

Paid-in capital in excess of par value

20X5
$500,000
1,750,000

Preferred

24,000

Common

4,620,000

3,600,000

Retained earnings

8,470,000

6,920,000

Total stockholders equity

$16,044,000 $12,770,000

a.

Compute the number of preferred shares that were issued during 20X6.

b.

Calculate the average issue price of the common stock sold in 20X6.

c.

By what amount did the companys paid-in capital increase during 20X6?

d.

Did Stars total legal capital increase or decrease during 20X6? By what amount?

Chapter 2 Problem 1
1. Bond computations: Straight-line amortization
Southlake Corporation issued $900,000 of 8% bonds on March 1, 20X1. The bonds pay interest
on March 1 and September 1 and mature in 10 years. Assume the independent cases that follow.
Case AThe bonds are issued at 100.

Case BThe bonds are issued at 96.

Case CThe bonds are issued at 105.

Southlake uses the straight-line method of amortization.

Instructions:
Complete the following table:
Case A Case B Case C
1.

Cash inflow on the issuance date

_______ _______ _______

Total cash outflow through maturity

_______ _______ _______

Total borrowing cost over the life of the bond issue

_______ _______ _______

Interest expense for the year ended December 31, 20X1

_______ _______ _______

Amortization for the year ended December 31, 20X1

_______ _______ _______

Unamortized premium as of December 31, 20X1

_______ _______ _______

Unamortized discount as of December 31, 20X1

_______ _______ _______

Bond carrying value as of December 31, 20X1

_______ _______ _______

Chapter 3 Exercise 1

1. Product costs and period costs

The costs that follow were extracted from the accounting records of several different
manufacturers:
1.

Weekly wages of an equipment maintenance worker

2.

Marketing costs of a soft drink bottler

3.

Cost of sheet metal in a Honda automobile

4.

Cost of presidents subscription to Fortune magazine

5.

Monthly operating costs of pollution control equipment used in a steel mill

6.

Weekly wages of a seamstress employed by a jeans maker

7.
Cost of compact discs (CDs) for newly recorded releases of Rush, Billy Joel, and Bryan
Adams
a.

Determine which of these costs are product costs and which are period costs.

b.
For the product costs only, determine those that are easily traced to the finished product and
those that are not.

Chapter 3 Exercise 2
2. Definitions of manufacturing concepts
Interstate Manufacturing produces brass fasteners and incurred the following costs for the year
just ended:
Materials and supplies used
Brass

$75,000

Repair parts

16,000

Machine lubricants

9,000

Wages and salaries Machine operators

128,000

Production supervisors

64,000

Maintenance personnel

41,000

Other factory overhead Variable

35,000

Fixed

46,000

Sales commissions

20,000

Compute:
a.

Total direct materials consumed

b.

Total direct labor

c.

Total prime cost

d.

Total conversion cost

Chapter 3 Exercise 5
5. Schedule of cost of goods manufactured, income statement
The following information was taken from the ledger of Jefferson Industries, Inc.:
Direct labor
Selling expenses
Sales
Finished goods

$85,000Administrative expenses

$59,000

34,000Work in. process

300,000Jan. 1
Dec. 31

29,000
21,000

Jan. 1

115,000Direct material purchases

88,000

Dec. 31

131,000Depreciation: factory

18,000

Raw (direct) materials on hand

Indirect materials used

10,000

Jan. 1

31,000Indirect labor

24,000

Dec. 31

40,000Factory taxes

8,000

Factory utilities

11,000

Prepare the following:

a.

A schedule of cost of goods manufactured for the year ended December 31.

b.

An income statement for the year ended December 31.

Chapter 3 Problem 3
3. Manufacturing statements and cost behavior
Tampa Foundry began operations during the current year, manufacturing various products for
industrial use. One such product is light-gauge aluminum, which the company sells for $36 per
roll. Cost information for the year just ended follows.
Per Unit
Direct materials
Direct labor
Factory overhead
Selling

Variable Cost

Fixed Cost

$4.50

6.5

50,000

70,000
Production and sales totaled 20,000 rolls
and 17,000 rolls, respectively There is

Administrative

135,000

no work in process. Tampa carries its finished goods inventory at the average unit cost of
production.

Instructions:
a.

Determine the cost of the finished goods inventory of light-gauge aluminum.

b.

Prepare an income statement for the current year ended December 31

c.

On the basis of the information presented:

1.

Does it appear that the company pays commissions to its sales staff? Explain.

2. What is the likely effect on the $4.50 unit cost of direct materials if next years production
increases? Why?

ACC 206 Week 2 DQ1 Stock Features

1. What is callable preferred stock? Why do corporations issue such stock? Given the different
features that are associated with stock (callable, cumulative, preferred, etc.), what type of stock
would you want to buy personally and why?
Guided Response :
Review your peers posts. Respond to at least two of your classmates, letting them know if you
agree with their type of desired stock and whether your answer would change (and why) based
on:
a. Different economic conditions
b. State of the company (if the company is in a growth phase versus a mature state).

ACC 206 Week 2 DQ2 Role of Management Accounting

Review the roles of management accounting within a company. What is the most important role
of management accounting? How is that different than financial accounting?
Guided Response:
Review your peers responses. Respond to at least two of your peers, adding at least two
additional areas that management accountants focus on that the author didnt include

ACC 206 Week 2 Journal Institute of Management Accounting

While there are many instances of overlap between financial accounting and management
accounting, each groups primary focus is different. Review the Institute of Management
Accountings (IMA) website, specifically the About IMA and the Resources and
Publications sections of the website. Are you surprised by the topics that management
accountants are focusing on? Why or why not? What interests you more, financial accounting or
management accounting?
Carefully review the Grading Rubric for the criteria that will be used to evaluate your journal
entry.

ACC 206 Week 3 Assignment Chapter Four and Five Problems

Please complete the following 7 exercises below in either Excel or a word document (but must
be single document). You must show your work where appropriate (leaving the calculations
within Excel cells is acceptable). Save the document, and submit it in the appropriate week using
the Assignment Submission button.
Chapter 4 Exercise 3
3. Cost flows and overhead application
Cleveland Metals uses a job cost system and applies factory overhead to production at a
predetermined rate of 180% of direct labor cost. Data pertaining to recent operations follow.
Job no. 636 was the only job in process on January 1 of the current year. The
Work in Process account contained a $24,600 balance on this date.
Jobs no. 637, 638, and 639 were started during January.

Total direct material requisitions and directlabor incurred during January

amounted to $89,200 and $114,500, respectively.
The only job that remained in process on January 31 was job no. 638, with costs
of $15,000 for direct materials and $20,000 for direct labor.
a.

Compute the total cost of the work in process inventory on January 31.

b.
Compute the cost of jobs completed during January, and present the proper journal entry to
reflect job completion.

Chapter 4 Exercise 7
7. Overhead application: Working backward
The Towson Manufacturing Corporation applies overhead on the basis of machine hours. The
following divisional information is presented for your review:
Division ADivision B
Actual machine hours

22,500?

Estimated machine hours

20,000?

Overhead application rate

$4.50

Actual overhead

$5.00

$110,000?

Estimated overhead

$90,000

Applied overhead

$86,000

Over- (under-) applied

overhead

$6,500

Find the unknowns for each of the divisions.

Chapter 4 Problem 2
2. Computations using a job order system
General Corporation employs a job order cost system. On May 1 the following balances were
extracted from the general ledger;

Work in process

$ 35,200

Finished goods
Cost of goods sold

86,900
128,700

Work in Process consisted of two jobs, no. 101 ($20,400) and no. 103 ($14,800). During May,
direct materials requisitioned from the storeroom amounted to $96,500, and direct labor incurred
totaled $114,500. These figures are subdivided as follows:

Direct Materials

Direct Labor

Job No.

Amount

Job No.

Amount

101

$5,000

101

$7,800

115

19,500

103

20,800

116

36,200

115

42,000

Other

35,800

116

18,000

$96,500

Other

25,900
$114,500

Job no. 115 was the only job in process at the end of the month. Job no. 101 and three other
jobs were sold during May at a profit of 20% of cost. The other jobs contained material and
labor charges of $21,000 and $17,400, respectively.

General applies overhead daily at the rate of 150% of direct labor cost as labor summaries are
posted to job orders. The firms fiscal year ends on May 31.
Instructions:
a.

Compute the total overhead applied to production during May.

b.

Compute the cost of the ending work in process inventory.

c.

Compute the cost of jobs completed during May.

d.

Compute the cost of goods sold for the year ended May 31.

Chapter 5 Exercise 1
1. High-low method
The following cost data pertain to 20X6 operations of Heritage Products:
Quarter 1

Quarter 2

Quarter 3

Quarter 4

Shipping costs

$58,200

$58,620

$60,125

$59,400

Orders shipped

120

140

175

150

The company uses the high-low method to analyze costs.

a.

Determine the variable cost per order shipped.

b.

Determine the fixed shipping costs per quarter.

c.
If present cost behavior patterns continue, determine total shipping costs for 20X7 if
activity amounts to 570 orders.

Chapter 5 Exercise 2
The treasurer anticipates the following costs for the event, which will be held at the Regency
Hotel:
Room rental
$300
Dinner cost (per person)
25
Chartered buses
500
Favors and souvenirs (per person)
5
Band
900
Each person would pay $40 to attend; 200 attendees are expected.
a.

Will the event be profitable for the sorority? Show computations.

b.

How many people must attend for the sorority to break even?

c.
Suppose the sorority encouraged its members to drive to the hotel and did not charter the
buses. Further, a planned menu change will reduce the cost per meal by $2. If each member will
still be charged $40, compute the contribution margin per person.

Chapter 5 Exercise 3
3. Break-even and other CVP relationships
Cedars Hospital has average revenue of $180 per patient day. Variable costs are $45 per patient
day; fixed costs total $4,320,000 per year.
a.

How many patient days does the hospital need to break even?

b.

What level of revenue is needed to earn a target income of $540,000?

c.
If variable costs drop to $36 per patient day, what increase in fixed costs can be tolerated
without changing the break-even point as determined in part (a)?

Chapter 5 Problem 6
6. Direct and absorption costing
The information that follows pertains to Consumer Products for the year ended December 31,
20X6.
Inventory, 1/1/X6
Units manufactured
Units sold
Inventory, 12/31/X6
Manufacturing costs:
Direct materials
Direct labor
Variable factory overhead
Fixed factory overhead
Selling & administrative expenses:
Variable
Fixed

24,000 units
80,000
82,000
? units
$3 per unit
$5 per unit
$9 per unit
$280,000
$2 per unit
$136,000

The unit selling price is $26. Assume that costs have been stable in recent years.

Instructions:
a.

Compute the number of units in the ending inventory.

b.

Calculate the cost of a unit assuming use of:

1.

Direct costing.

2.

Absorption costing.

c.
Prepare an income statement for the year ended December 31, 20X6, by using direct
costing.
d.
Prepare an income statement for the year ended December 31, 20X6, by using absorption
costing.

ACC 206 Week 3 DQ1 Issues in Costing

ACC 206 Week 3 DQ2 CVP and the Airline Industry

ACC 206 Week 3 Journal Hershey Company

ACC 206 Week 4 Assignment Chapter Six and Seven Problems

Please complete the following 8 exercises below in either Excel or a word document (but must
be single document). You must show your work where appropriate (leaving the calculations
within Excel cells is acceptable). Save the document, and submit it in the appropriate week using
the Assignment Submission button.

Chapter 6 Exercise 2
2. Schedule of cash collections
Sugarland Company sells a single product and anticipates opening a new facility in Charlotte on
May 1 of the current year. Expected sales during the first three months of activity are: May,
$60,000; June, $80,000; and July, $85,000. Thirty percent of all sales are for cash; the remaining
70% are on account. Credit sales have the following collection pattern:

Chapter 6 Exercise 4
4. Production and cash-outlay computations
RPR, Inc., anticipates that 120,000 units of product K will be sold during May. Each unit of
product K requires four units of raw material A. Actual inventories as of May 1 and budgeted
inventories as of May 31 follow.

Chapter 6 Exercise 5
5. Abbreviated cash budget; financing emphasis

An abbreviated cash budget for Big Chuck Enterprises follows.

Chapter 6 Problem 3
3. Comprehensive budgeting
The balance sheet of Watson Company as of December 31, 20X1, follows.
Chapter 7 Exercise 3
3. Variances for direct materials and direct labor
Banner Company manufactures flags of various countries. Each flag has a standard of eight
square feet of fabric and three hours of direct labor time. Information about recent production
activity follows.
Chapter 7 Exercise 5
5. Overhead variances
Nova Manufacturing applies factory overhead to products on the basis of direct labor hours. At
the beginning of the current year, the companys accountant made the following estimates for the
forthcoming period:

Estimated variable overhead: $500,000

Estimated fixed overhead: $400,000

Estimated direct labor hours: 40,000

It is now 12 months later. Actual total overhead incurred in the manufacture of 7,900 units
amounted to $895,100. Actual labor hours totaled 39,800. Assuming a direct labor standard of
five hours per finished unit, calculate the following:
a.

Variable overhead efficiency variance

b.

Fixed overhead volume variance

c.

Overhead spending variance

Chapter 7 Problem 1
1. P26-A1 Basic flexible budgeting (L.O. 2)
Centron, Inc., has the following budgeted production costs:

Direct materials
Direct labor
Variable factory overhead
Fixed factory overhead
Supervision
Maintenance
Other

$0.40 per unit

1.80 per unit
2.20 per unit
$24,000
18,000
12,000

The company normally manufactures between 20,000 and 25,000 units each quarter. Should
output exceed 25,000 units, maintenance and other fixed costs are expected to increase by $6,000
and $4,500, respectively.
During the recent quarter ended March 31, Centron produced 25,500 units and incurred the
following costs:

Direct Materials

$10,710

Direct Labor

47,175

Variable factory overhead

51,940

Fixed factory overhead

Supervision

24,500

Maintenance

23,700

Other

16,800

Instructions:
a. Prepare a flexible budget for 20,000,
22,500, and 25,000 units of activity.
Total production costs

$174,825

b. Was Centrons experience in the

quarter cited better or worse than
anticipated? Prepare an appropriate performance report and explain your answer.
c.
Explain the benefit of using flexible budgets (as opposed to static budgets) in the
measurement of performance.

Chapter 7 Problem 5
5. P26-B3 Straightforward variance analysis (L.O. 5)
Arrow Enterprises uses a standard costing system. The standard cost sheet for product no. 549
follows.

ACC 206 Week 4 DQ1 Issues in Standard Costs and Budgeting

ACC 206 Week 4 DQ2 Flexible Budgets

ACC 206 Week 5 Assignment Chapter Eight Problems

Please complete the following 5 exercises below in either Excel or a word document (but must
be single document). You must show your work where appropriate (leaving the calculations
within Excel cells is acceptable). Save the document, and submit it in the appropriate week using
the Assignment Submission button.

Chapter 8 Exercise 1:
1. Basic present value calculations
Calculate the present value of the following cash flows, rounding to the nearest dollar:
a.

A single cash inflow of $12,000 in five years, discounted at a 12% rate of return.

b.

An annual receipt of $16,000 over the next 12 years, discounted at a 12% rate of return.

c. A single receipt of $15,000 at the end of Year 1 followed by a single receipt of $10,000 at
the end of Year 3. The company has a 10% rate of return.

d. An annual receipt of $8,000 for three years followed by a single receipt of $10,000 at the
end of Year 4. The company has a 12% rate of return.

Chapter 8 Exercise 4:
4. Cash flow calculationsand net present value
On January 2, 20X1, Bruce Greene invested $10,000 in the stock market and purchased 500
shares of Heartland Development, Inc. Heartland paid cash dividends of $2.60 per share in 20X1
and 20X2; the dividend was raised to $3.10 per share in 20X3. On December 31, 20X3, Greene
sold his holdings and generated proceeds of $13,000. Greene uses the net-present- value method
and desires a 16% return on investments.
a.
Prepare a chronological list of the investments cash flows. Note: Greene is entitled to the
20X3 dividend.
b.

Compute the investments net present value, rounding calculations to the nearest dollar.

c.
Given the results of part (b), should Greene have acquired the Heartland stock? Briefly
explain.

Chapter 8 exercise 5:
5. Straightforwardnet present value and internal rate of return
The City of Bedford is studying a 600-acre site on Route 356 for a new landfill. The startup cost
has been calculated as follows:
Purchase cost: $450 per acre
Site preparation: $175,000

The site can be used for 20 years before it reaches capacity. Bedford, which shares a facility in
Bath Township with other municipalities, estimates that the new location will save $40,000 in
annual operating costs.
a.
Should the landfill be acquired if Bedford desires an 8% return on its investment? Use the
net-present-value method to determine your answer.

Chapter 8 Problem 1:
1. Straightforward net-present-value and payback computations
STL Entertainment is considering the acquisition of a sight-seeing boat for summer tours along
the Mississippi River. The following information is available:
Cost of boat
Service life
Disposal value at the end of 10 seasons
Capacity per trip
Fixed operating costs per season (including straight-line depreciation)
Variable operating costs per trip
Ticket price

$500,000
10 summer seasons
$100,000
300 passengers
$160,000
$1,000
$5 per passenger

All operating costs, except depreciation, require cash outlays. On the basis of similar operations
in other parts of the country, management anticipates that each trip will be sold out and that
120,000 passengers will be carried each season. Ignore income taxes.

Instructions:
By using the net-present-value method, determine whether STL Entertainment should acquire the
boat. Assume a 14% desired return on all investments,- round calculations to the nearest dollar.

Chapter 8 Problem 4:
4. Equipment replacement decision
Columbia Enterprises is studying the replacement of some equipment that originally cost
$74,000. The equipment is expected to provide six more years of service if $8,700 of major
repairs are performed in two years. Annual cash operating costs total $27,200. Columbia can sell
the equipment now for $36,000; the estimated residual value in six years is $5,000.
New equipment is available that will reduce annual cash operating costs to $21,000. The
equipment costs $103,000, has a service life of six years, and has an estimated residual value of
$13,000. Company sales will total $430,000 per year with either the existing or the new
equipment. Columbia has a minimum desired return of 12% and depreciates all equipment by the
straight-line method.

Instructions:
a.
By using the net-present-value method, determine whether Columbia should keep its
present equipment or acquire the new equipment. Round all calculations to the nearest dollar, and
ignore income taxes.
b.
Columbias management feels that the time value of money should be considered in all
long-term decisions. Briefly discuss the rationale that underlies managements belief.
ACC 206 Week 5 DQ1 Long-term Decision Making

ACC 206 Week 5 DQ2 Responsibilities in Management Accounting

ACC 206 Week 5 Final paper

Focus of the Final Paper

Youve 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 hes
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 ABCs 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 youve 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?
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 factorys 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. Students name
c. Course name and number
d. Instructors 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.
Carefully review the Grading Rubric for the criteria that will be used to evaluate your
assignment.