What is the product cost for the expansion product under absorption and variable costing?

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 you’ve 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 funds?

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. Bases on current research, 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 under absorption and variable costing?

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?