Week 5 Writing Assignment Final Paper: ABC Company (Essay Sample)

Week 5: Final Paper
Name
Institution
Week 5: Final Paper
Introduction
Organizations are driven by a set of policies and goals. The activities within the firms must be structured in such a way that the complementarily contribute towards the realization of the predefined organizational goals. Analysis of the ABC Company indicates that the firm is led by the CEO whose principle mandate is to ensure that all the operations within the company are seamlessly realized to guarantee profitability. Notably, the company specializes in the manufacturing of cedar roofing as well as the siding shingles. It has also planning to venture in the cedar dollhouses sector. The firm’s projections are to generate over $3 million within the next three years from the proposed investment plan. This will be a 150% improvement on the $1.2 million that the company generates from its current production lines. However, the move is characterized by a number of risks that the company will have to take. The confidence of the investors to support the change initiative will be analyzed in this case. Moreover, the case will analyze the practicality of the project in the wake of the current business environment in which the firm operates.
Risk Profile
The goal of the company is to achieve about $150% growth in its revenues. This is a difficult feat to achieve within the current business landscape. Therefore, the company must be prepared to tackle a number of risks. These risks can be viewed from the customer or management perspective. Therefore, the following measures should be taken into consideration when planning for the activities of the company.
* The anticipations of the clients
When the company launches its new product lines, it will come with multiple anticipations from the customers. Therefore, the firm has to establish strategic measures for gauging the client’s anticipations and integrating them in the production process.
* Resource Mobilization
The new production lines will require the company to commit finances. The availability of the critical resources necessary to meet the fundamental production goals is key in the production process. The company will also have to ensure that the raw materials necessary for the new production lines are available. Otherwise, the profitability of the venture will be significantly affected.
* Loss of Market Share
There are multiple incidences when firms have lost part of their market shares following launches of new products. Therefore, this is an area that the company will have to pay attention to.
* Skilled Workforce
The current employees in the company may not be skilled in the new production line that the company wishes to initiate. Therefore, it will contend with the possibility of workforce challenges that may subsequently cripple the production processes.
* Readiness for Change
The change process should be al inclusive to prevent possible conflicts. Analysis of the current business dynamics, however, indicate that the company may face the hurdle especially when part of its workforce is resistant to change. also, the acceptability of the change to the clients is a major risk factor.
* Inflation and High Production Costs
The company will likely suffer from inflation. It will lead to significant increases in the costs of production and hence cripple the change initiatives that the company wishes to adopt. The pricing of the resultant products may be unaffordable to the population.
The Cash-Flow Statement for the ABC Company
December 31, 20X2
Statement of Cash Flow



20X2



amount $

amount $

Net income


120000.00

 

Adding Depreciation


70000.00

 

Cash Receipt Totals


 

190000.00

Effect of changes


 

 

Trade Receivables


6000.00

 

Inventory Accounts


-35000.00

 

Accounts payable


-250000.00

 

Payable Income Taxes


-30000.00

 

Total Payments in Cash


 

-80000.00

Net cash flows from operating activities

 

270000.00

capital expenditures


 

-100000.00

Net cash used in investing activities

 

-100000.00

Long-term Debt


 

70000.00

Dividends Payments


 

10000.00

Net Expenditure

 

-30000.00

Net Cash Flow


 

140000.00

Cash At Beginning of Year

 

50000.00

Cash End of Year

 

210000.00

Cash flow statements and fundamental tools in defining the financial position of a company. The above analysis highlights the inflow and outflow of finances in the company, as well as the specific uses of the finances. Based on the analysis, it is notable that the total cash-flow generated in the company is $270,000 in the year under review. The income after tax is estimated at about $30,000. This confirms that the company is profitable at the moment. The above statement also indicates that the company has used more money in financing and investment activities. Other sources have generated very little returns based on the financial assessment above. With the positive cash flow, the company can effectively invest in equipment and payment of dividends to a tune of $200,000.
Moreover, the company should consider expanding its investment in securities of debt, a move that will significantly boost income. Also, it is advisable for the company to issue more common stock as a way of generating more revenue required for the outlined expansion plans. ABC Company can also achieve additional financing by allotting equity and corporate debt. This move is informed by the fact that the expansion plan will necessitate commitment of more revenues that the company does not have currently therefore, the measures will enable ABC Company to generate the requisite revenue from external sources. More importantly, it is recommended that the company adopts debt financing instead of equity financing due to its currently strong financial position.
ABC's Product Information

Current Product

Expansion Product (estimate)

Selling Price

$14.50

$15.12

Units produced and expected to be sold

80,000.00

5,000.00

Machine Hours

40,000.00

5,000.00

Direct Materials (per Unit)

$1.30

$5.60

Direct labor (per Unit)

$2.80

$4.00

VFO (per Machine Hr)

$1.00

$1.00

VSE (per Unit)

$0.20

$0.20

Total Fixed Costs:



FFO

$198,000


FSE

$191,250


The company believes that it has 5000 machine hours that ca be used to expand its operations. Therefore, the firm will ot need to immediately increase its fixed overhead costs. Based on the expansion plan, the company is better positioned expand its operations by 5000 units, and will require about $54,000 since the cost per unit is estimated at $10.80. Based on these current production data, the current production potential of the company can be summarized as follows;
* The per unit cost for the company before expanding its production stands at $4.80
* If the company adopts the proposed expansion, then the per unit cost will increase from the current $4.80 to $9.73.
* The total per unit cost after the expansion will stand at $19.46, a figure that will be $4.93 higher than the current selling price.
For the company to realize the 40% gross margin, it will have sell the new product at $15.20 for every unit.
Consolidated Product Cost

Current and Expansion Product

TVC

438,000.00

FFO

198,000.00

FSE

191,250.00

TPC

827,250.00

Total Units

85,000.00

Production Cost (Per Unit)

9.732352941

Break-Even Analysis
If the sales mix for the two products is the same, then the analysis of the break-even point for the two products gives $7.40, while the contribution margin of the sum expected production stands at $7.13 for every unit. Based on this background, the company’s production process will break even after production of 55,365 units. This analysis is as highlighted below.
Particulars

Current

Per unit

Expected

Per unit

Units sold

80000.00


85000.00


Sales

960000.00

$14

1035600.00

$12.18353

Variable expenses

384000.00

$4.8

438000.00

$5.152941

Contribution margins

576000.00

$7.4

597600.00

$7.130588

Equipment Purchase
Currently, the company has the capacity to acquire new equipment to facilitate its production processes. The ac...