ABC Company

ABC Company has an annual sale of $1.2 million being a very predominant reliable company that would be fruitful, and having an increase in sales of 25% from the year prior. There is a possibility of successful growth of three million annual sales in the next three years of business. Being that the company is growing rapidly they should take the adequate steps to propertyanalysis the present routines and ongoing prediction. The internal control would be defined as a step were the organization’s structure affects, labor and authority flow, the information system of management and everyone, generated to assist the organization fulfill its goals or objective. An adequate internal control system in each company should exists in every functioning company.

Internal Control systems would be more efficient and controlled when assigning separate duties, correct transaction authorization, a safety net for important files and document as well as assets. can be made more control by installing segregation of duties, proper authorization for transactions, adequate technology system for the company, proper maintenance of records, high quality level of the plans, process and so on and also by having a grasp of information processing. The company’s risk that would be taken are generally in the loss of the demands of the product, the new government policies within the manufacturing market, conflict in labor due to the economy, increase of taxes for business from the government amongst other things.

Being that the company is moving forward and growing aswell as setting new manufacturing units project they would have to analysis the projects advantage and disadvantage very careful. The most efficient way to take control of the projects being a risk would be as follow:

• Required documentation to generate proper date for a positive effect performance for the adequate project, letting know that quality, and not quantity, would be that makes performance work.
• Indicate the proper metrics the project requires, machining sure that they are not troublesome and effect performance in positive manner. Many of time, the metrics change for the better the way they behave rather tha give adequate performance.
• A workshop for the projects start up had to be adequately prepared as well as being carried through. A proper straining to accomplish the indicated goal must be assigned to the appropriate person (s).
•The adequate quantity and circumstances, for the project, have to be determined.
•When it pertains to the objective it must be discussed with stakeholders so that it may be properly discussed for the positive outcome of the project.
•Making sure that all parties are working junction to carry out the plan indicated.

PART-II

a)The Company’s Income Statement is as follows:-
On analysis of the Income Statement, we would see that the Net Income before the dividend are declared is $5000/- although as the company provides dividend in a high quantity of it profit, this comes out for a loss to the company. Therefore, the company’s CEO should not declare the dividend that was more than the income made.

The Company’s Statement of Cash Flow is as follows:
Income Statement for the Year ended 19X2
Statement of Cash Flow for the Year ended 19X2
Income(50,000)
Add: Non Cash Items
Depreciation expense70,000

Changes in Working Capital
Accounts receivable (net) 60,000
Merchandise inventory (70,000)
Accounts payable 40,000
Income taxes payable 30,00060,000
Cash from Operation (A)80,000

Cash from Investing Activities
Purchase of Equipment(100,000)
Therefore Cash from Investing Activities (B)(100,000)
Cash from Financing Activities
Therefore Cash from Financing Activities (C)0
Increase in Cash (A+B+C)(20,000)
Opening Cash70000
Closing Cash 50,000

b1) The Cash flow in the statement lets us know that the Operation part being $80000/- has a good sign of cash flow for the company ABC. It would signify if the company would be able to make the adequate amount of cash flow in order to sustain and generate more its operations. The Cash that comes from the Operation is money that in generated internally unlike the money being generated externally from investments and financing activities. The Investing activities in the Cash Flow are negative on the account when it pertains to purchasing of equipment, which would be it is money going out of the company.

The fact that the equipment is being purchase will only be validated if there is any additional profit generated in the time to come and that it makes the money that it being spent as well as it benefitting the cash flow. A significant ration of Operating Cash Flow/ Net Sales Important ratio of Operating Cash Flow/ Net Sales equaling 80000/1200000 = 6.67%. It indicates how many dollars are being generated when it pertain to the every sales by the dollar.

bII) The improvement of the company’s cash flow can be accomplished if the borrower are made to pay in a few days that its occurring know. A high amount of money is allocated in Merchandise inventory on the December, 31, 19X2, with the amount of $350,000/-, this indicates that the sales are cloudy and it sales are not being met in selling the high quantity that is being made by the company. A great pull need to be done in order to focus the raise of demand when it pertains to the product.

bIII) Unfortunately the current cash flow cannot sustain the product being the debtors and stock are in the way of the funds. The Dividend are too high for the company that intern affects the Cash Flow of the company. bIV) There should be a type of way to finance the project by the company to take a loan that suits their need. The Company would benefit form a loan being that it can be a deductible when it comes to taxes as well as being shielded by tax when it pertains to loans.

PART-III
Current ProductExpansion Product (estimate)
Sale1,160,000 171,100
Direct Material Cost104,000 28,000
Direct Labor224,000 20,000
Variable Overhead (Factory)40,000 5,000
Variable Overhead (Selling)16,000 1,000
Contribution776,000 117,100
Fixed Factory Overhead198,000 24,750
Fixed Selling expenses191,250 23,906
Profit386,750 68,444
Profit Per unit4.83 13.69

a)The products cost that is for the expansion of the product total is$28,000+$20,000+$5,000+$1,000+$24750+$23,906 = $102,656/- b)Being that the expansion product would be added it would help with the fixed factory and sales expenses to be taken in.

With this overhead would be less by $48,656/-, injunction with the additional 5000 unit of the production.

c)The Expansion Product cost equals $102,656
Profit Rate equals 40%
Meaning that Sale will equal $102,656/(1-40%)
=$171,100/-
d)

Sale1,160,000 171,100
Direct Material Cost104,000 28,000
Direct Labor224,000 20,000
Variable Overhead (Factory)40,000 5,000
Variable Overhead (Selling)16,000 1,000
Contribution776,000 117,100
Fixed Factory Overhead198,000 24,750
Fixed Selling expenses191,250 23,906
Profit386,750 68,444
Profit Per unit4.83 13.69

Contribution Margin per unit9.723.42
Break Even= FC/Contribution per unit40,129
2,078

The profit when the Sale as theprofit is going to be evenly broken.

PART-IV
a)
12%
YearSavingsDF @12%Amount
1Year-1150001.0000 15,000.00
2Year-2130001.0000 13,000.00
3Year-3100001.0000 10,000.00
4Year-4100001.0000 10,000.00
5Year-560001.0000 6,000.00
54,000.00
aNPV= Cash Inflow-Cash Outflow
54,000.00-4200012,000.00

b)When being mindful of the Depreciation, the fixed cost increases in the product. Being that the Depreciation is not a cash item, the effect of the Cash Flow of the product itself would be noticeable. c)When the projects savings is deducted with the expected rate of 12% then we would get a NPV that is positive. Therefore we can say that ABC Company is a recommendable company to buy the equipment.

PART-V
a)The Risk that has to be taken into consideration with the project would be the ability to have the sufficient cash flow to be able to justify the $42,000/- investment for the equipment purchased. Although when the equipment is financed, when a loan is taken, the project would be acceptable when the NPV would be positive. When the tax is a major factor in having a project then the loans interest would enable the cash flow to increase and the tax to be decreased. Interest on loan is Tax deductible and the Company should exploit this benefit. In another avenue the risk of lack of demand would be another risk to consider and the company should be able to increase sales with its product. b)Being a controller and a management accountant it would be typical not to accept any project with a negative NPV but a positive one.

A analysis carefully going over the cash flow statement would be able to view that Free Cash flow = Cash From Operation – Capital Expenditure = $80000-$100000= ($20000), this would mean that the ABC company cannot take on a project without taking a loan or various loans to finance the project. c)Although the NPV is positive in this company I would suggest to the CEO not to accept such project because it would not be enough and any risk may bring the whole company down. In addition, it would be recommended to no declare the dividend on the shares since it place a major impact on the cash flow of the company ending balance.