Abc Company Essay

711 Words3 Pages
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 skill set as well as the manufacturing facilities. ABC Company's current financial information (before/without expansion) Dec. 31,19X2 Dec. 31,19X1 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:…show more content…
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. 1. What is the product cost for the expansion product? 2. 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. Assuming ABC Company wants a 40% gross margin for the new product, what selling price should it set for the expansion product? 4. 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

More about Abc Company Essay

Open Document