Acc 206 Final

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Principles of Accounting II Final Paper Scott Khy ACC206: Principles of Accounting II (BAH1603A) Instructor: Dawayne Rowell February 15th, 2016 RISK PROFILE OF THE COMPANY Review of ABC Company and the directions it is targeting. The strategy of the company is to lift the expected sales in an aggressive fashion, with the expected end target being to triple the current levels. The plan is to push sales into the targeted range of $3 million within 3 years versus the current amount which sits at $1.2 million. We will identify the perceived risk factors that may impact this aggressive strategy and its successful execution. The following will be those risk factors: i. Risk of product not meeting customer…show more content…
In debt financing the interest expense is allowable expense resulting in low tax expense, where as in case of equity finance the cost of equity is dividend, and no advantage can be availed in tax. The company position is strong enough so its better that company should use debt financing instead of equity financing. NEW PRODUCT COST PRODUCT COST FOR THE EXPANSION The product cost per unit under absorption costing is $15.00 and under variable costing are 10.60. | ABSORPTION COSTING | VARIABLE COSTING | Direct Materials | $ 5.60 | $ 5.60 | Direct labor dollars needed per product | $ 4.00 | $ 4.00 | Variable Factory Overhead | $ 1.00 | $ 1.00 | Fixed Factory Overhead | $ 4.40 | S - | Product Cost Per Unit | $ 15.00 | $ 10.60 | IMPACT OF EXPANSION ON PRODUCT COST One of the major benefits of expansion is the reduction of fixed cost (fixed and selling). The cost is absorbed by 85,000 units instead of 80,000 units resulting in saving of $0.42 per unit. | | AFTER EXPANSION | | Fixed Factory Overhead before expansion | $ 2.48 | $ 2.20 | | Fixed Selling Expense | $ 2.39 | $ 2.25 | |
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