1 Excel spreadsheet and 1 paper of 1,500–2,000 words Based on the following information, calculate net present value
(NPV), internal rate of return (IRR), and payback for the investment
opportunity:EEC expects to save $500,000 per year for the next 10 years by purchasing the supplier.
EEC’s cost of capital is 14%.
EEC believes it can purchase the supplier for $2 million. Answer the following: Based on your calculations, should EEC acquire the supplier? Why or why not?
Which of the techniques (NPV, IRR, or payback period) is the most useful tool to use? Why?
Which of the techniques (NPV, IRR, or payback period) is the least useful tool to use? Why?
Would your answer be the same if EEC’s cost of capital were 25%? Why or why not?
Would your answer be the same if EEC did not save $500,000 per year as anticipated?
What would be the least amount of savings that would make this investment attractive to EEC?
Given this scenario, what is the most EEC would be willing to pay for the supplier? Prepare a memo to the President of EEC that details your findings and
shows the effects if any of the following situations are true:EEC’s cost of capital increases.
The expected savings are less than $500,000 per year.
EEC must pay more than $2 million for the supplier. attached: Previous work from this class this class
unit_1_db2.docx

unit_2_db.docx

unit_3_db.docx

eec_s_journal_activity..xls

Unformatted Attachment Preview

Running head: ANALYSING FINANCIAL STATEMENT
Analyzing Financial Statement
Institutional Affiliation
Name
Date
1
ANALYSING FINANCIAL STATEMENT
To:
Susan Thompson
From:
Financial Accountant
Date:
03/01/2018
Subject:
Similarities and Differences between Financial and Managerial Accounting.
2
The differences
Both financial and managerial accounting is useful in providing financial information to
users when it comes to making vital cooperate decisions. The primary purpose of financial
accounting, as well as reporting, is to provide information to the already existing as well as
potential lenders, investors, and creditors for them to make well-informed decisions concerning
buying or lending as well as debt instruments and selling equity.
On the other hand, managerial accounting provides the opportunity of presenting
appropriate information to the internal managers in the company, so they make the best decisions
concerning how to run the company (Madison, 2017). In a nutshell financial accounting can be
described as a means of focusing on the needs of the outside stakeholders while managerial
accounting is a tool that is applied in focusing on the needs of internal users.
The management accounting reports are significantly important when it comes to proper
planning, staffing, controlling, organizing, decision making, and directing. Financial accounting
reports, on the other hand, are not much considered when it concerns coordinating, directing,
planning, controlling, decision making, planning, and staffing. Again, for the financial
accounting to be applied one has to use the double entry system in conducting business
transactions such as summarizing, recording, and the classification of business transactions,
while management accounting is not based on the double entry system.
ANALYSING FINANCIAL STATEMENT
3
In financial accounting, the General Accepted Accounting Principles (GAAP) are
considered to be significantly important, while this is not recognized in the field of management
accounting. Historical costs and past transactions are as well important in financial accounting,
but they are not much of use to the managerial accounting.
Similarities
Both financial accounting and managerial accounting are considered as parts of the total
accounting information system, and in both fields, the economic events are accepted only in
terms of rupees, and they are as well dealt in both methods of the accounts. Managerial, as well
as financial accounting, are both involved with revenues, financial statements, cash flows,
liabilities, and assets.
The systems of financial and managerial accounts are generally applied in the
accumulation as well as classification of the accounting information purposely for the
preparation of the financial statements. Also, both of them are significant in the measurement
and determining of costs for various accounting periods including the various departments as
well as accounting sections. In both managerial accounting and financial accounting, the
database is majorly considered for organizing financial statements as well as reports which are
considered important in making decisions.
Among the managerial accounting reports that are expected to be seen within the EEC are
such as the job cost reports which are used in showing the expenses for a particular project that is
financed by a company. A budget report enables firm managers and owners to analyses the
business performance as well as the control costs and the department’s performance. Accounts
receivable aging which is a tool meant for managing cash flows that have been extended as credit
to customers in the business (Denise, 2018). The inventory and manufacturing reports which are
ANALYSING FINANCIAL STATEMENT
4
used in enhancing the managerial accounting system by increasing its efficiency and reliability,
therefore it is among the essential tools in the managerial accounting.
To:
The Board of Directors
From:
Financial Accountant
Date:
03/01/2018
Subject:
Information Found in Each of the Following Financial Statements
Balance sheet
This is a financial statement that illustrates the actual financial position of a business
during a particular time. Immediately the balance sheet has been completed and prepared; it
portrays as well as explains the company’s liabilities, assets, and the current capital (Zari, 2017).
The balance sheet is considered to be cumulative since it describes the results of the entire
financial activities that are included in the business.
Business owners and managers can use the results obtained from a balance sheet to
identify the company’s financial capabilities as well as the strengths. The vendors, investors and
banks as well use the company’s balance sheet in determining whether to extend credit or not;
therefore, it is an essential document.
Income statement
An income statement is considered to be among the core financial statements that
describe a company’s profit and loss over a specific time frame (Will, 2018). The income
statement can be used both in accounting as well as the corporate finance. The document enables
ANALYSING FINANCIAL STATEMENT
5
managers in determining the firm’s gross profit, costs, revenue, selling as well as the
administrative expenses.
Statement of cash flows
This is a financial statement that accounts for the cash used or generated by a company in
a specific time frame (Chris, 2018). The statement of cash flows provides managers with an
overview of the company’s financial performance by clearly categorizing the company’s cash
sources and how correctly it is used and divided into three specific categories which are; cash
flow from the investing activities, cash flow from financing activities, and cash flow from the
operating activities.
Statement of cash flows also helps managers in expanding the company, develop new
products, pay dividends, reduce debt or buy back stock. The cash flows statement can as well be
used determining the company’s current and future position, as well as performance.
Statement of stockholders’ equity
This is a financial document that a company releases as part of its balance sheet. The
statement of stockholders’ equity identifies the changes observed in the value to the
shareholders’ equity, or even the ownership interest in a firm in a specific accounting period
(Will, 2018). This document provides managers with the opportunity of determining the
preferred stock, treasury stock, common stock, unrealized gains and losses, retained earnings,
and additional paid-up capital. Therefore, the statement of stockholders’ equity should be
considered as part of a company’s vital documents in determining the financial performance.
ANALYSING FINANCIAL STATEMENT
6
References
Chris B. Murphy. (2018). What Is a Cash Flow Statement? Investopedia. Pp. 24-28
Denise Sullivan. (2018). Types of Managerial Accounting Reports. Chron. pp. 12-17
Madison Garcia. (2017). Similarities Between Management Accounting & Financial Accounting.
Bizfluent. Pp. 31-36
Will Kenton. (2018). Income Statement. Investopedia. Pp. 17-19
Will Kenton. (2018). Stockholders’ Equity. Investopedia. Pp. 31-37
Zari Ballard. (2017). Balance Sheet Method. Bizfluent. Pp. 22-29
Running head: COST BEHAVIOR PATTERNS AND CONCEPTS
Cost Behavior Patterns and Concepts
Colorado Technical University
Philidian Braswell
January 11, 2019
1
COST BEHAVIOR PATTERNS AND CONCEPTS
2
Part 1
The Eddison Electronic Company has a total of thirty-three activities that have been
included in the journal entries, indicating the operation with the highest and the lowest amount.
Variable costs are the costs that proportionally change depending on the goods and services that
are produced by a business. Among some of the variable costs that are included in the ECC’s
journal entries are like selling expense, purchases of raw material and supplies factory. Fixed
costs are referred to the business expenses that are entirely not depending on the level of the
services or goods that are produced by the business. ECC’s fixed costs include like factory
maintenance expense, factory property tax, and administrative expense.
The mixed cost is a cost that entails both a variable value as well as a fixed cost
component. In the ECC’s journal entries, the mixed costs activities include like purchases of raw
materials, insurance factory, finished goods inventory, and work in process inventory. Factors
that will affect a sales volume increase or decrease are such as the direct labor factory, indirect
labor, and purchase of raw materials, as well as plant and equipment. The unit fixed cost, and the
unit variable cost will be affected with factors such as the selling expense, supplies factory and
the purchases of raw materials. While the total fixed value, as well as the total variable cost, will
be determined by activities such as interest expense, accounts payable, prepaid fee, the bad debt
expense, work in process inventory and the finished goods inventory.
Part 2
Target costing is a system that enables a company to plan in advance for the particular
product costs, price points as well as the margins that it intends to achieve specifically for a new
product. In case the company is unable to manufacture a designed product at these specific
planned levels, it is then allowed to immediately cancel the design project completely (Sakurai,
COST BEHAVIOR PATTERNS AND CONCEPTS
3
2013). Target costing is considered as among the most effective and essential tool for attaining
consistent profitability since it enables the management team to continually monitor products
right from the time, they are at their design phase up to the finished products.
The Eddison Electronic Company could apply the target concept in conducting their
research. This concept enables the company to review the marketplace in which it intends to sell
their products, for this as well allows the design team to determine the set of products that the
customers are most likely to purchase as well as the price, they are willing to pay for the
particular features. The team will again have the opportunity of determining the target price for
the proposed products, as well as to alter the rates of some of the features that are found in the
products.
EEC will be able to calculate the maximum cost. The target costing concept will provide
the design team with an authorized gross margin that the proposed product is set to earn. The unit
can comfortably determine the company’s maximum target cost by subtracting the mandated
gross margin right from the projected product price, and this is set to be achieved before the
product is allowed into production.
The company will be able to engage both the engineers as well as the procurement
personnel as the team that will take the leading role towards creating the product, specifically by
applying the target cost technique. This is important since the team will quickly determine the
pricing of the product based on the required quality, quantity, and the delivery levels that are
expected for the product.
Advantages of target costing to EEC
i.
Cost Optimization: The target costing concept will allow the EEC’s team
to analyze the best way of acquiring products and at the lowest costs. This will be
COST BEHAVIOR PATTERNS AND CONCEPTS
4
advantageous to the company since minimizing the costs provides financial flexibility
towards achieving higher profit margins, as well as attracting an extensive customer base.
ii.
Reduced Development Cycle: This concept reduces cost with the target of
as well minimizing the product cycle time, which is referred to as the time taken from the
conception to a market-ready product.
iii.
Profitability: Target costing provides greater profitability to EEC by
taking both the costs as well as the price into account, and as well ensures that the
products produced are of quality standards and good price value.
Disadvantages of target costing to EEC
i.
The concept majorly relies on the estimation of the product’s final selling
price correctly, and this may cause an error to EEC concerning developing a marketing
strategy.
ii.
If the company fails to sell the number of goods or services produced, then
it is bound to face a significant loss.
iii.
The EEC production department may experience tough times due to the
estimation of too low prices, which again may affect the level of production.
COST BEHAVIOR PATTERNS AND CONCEPTS
Reference
Sakurai, M. (2013). Target costing and how to use it. Journal of cost management, 3(2), 39-50
5
Running head: DECISION-MAKING AND CAPITAL BUDGETING
Decision-Making and Capital Budgeting
Philidian Braswell
Colorado Technical University
1
DECISION-MAKING AND CAPITAL BUDGETING
2
Decision Making and Capital Budgeting
Investment decisions require a combination of strategies to determine the feasibility of
long-term business investments. This process therefore requires managers to forecast the future
with regards to the revenue that the new investment will generate. Capital budgeting decisions
also require the firm to make investment decisions after consideration of the past expenses to
determine their ability to make profit. This paper is concerned with whether EEC Company
should purchase the supplier or not.
What information is needed to analyze this investment opportunity?
Before deciding on whether to hire the supplier, several things need to be considered. The
first thing to do is analyzing whether the business opportunity is feasible with regards to how
much costs it will help the firm to save. In this case, the most crucial question to ask is whether
the investment opportunity will be a profit or loss for the company. Another vital point to
consider is the type of budget that the organization plans for the purchase of the supplier. This
will help to determine whether or not they can afford to pay the supplier. In addition to this, the
decision-making process in business requires speculating the impact that the purchase will have
on the organization (Goodman, Neamtiu, Shroff & White, 2013). The organization will also need
information regarding costs, revenues, pricing, and cash flows while considering purchasing the
supplier. Managers must use this information to determine the organization’s sources of income
as well as manage the cash outflow. Furthermore, information concerning the prices of
commodities will help the management to decide whether the new supplier will help to reduce
costs or not (Noreen, Brewer & Garrison, 2014). The managers can use horizontal analysis to
determine the cost of supplies over time and therefore determine the feasibility of the investment.
DECISION-MAKING AND CAPITAL BUDGETING
3
The business requires a review of their past financial records including income statement, cash
flow statements, and capital budgeting to establish their ability to benefit from the investment.
What will be your decision-making process?
The decision-making process on whether or not to hire the supplier requires the analysis
of financial records, forecasting and the use of other relevant information by the organization.
The review could include horizontal techniques that help the firm to observe the performance of
a single time over time and the costs involved while the vertical analysis could assist the
management in comparing information about various items over a period. The ratio analysis
technique is also applicable in this case, and it will help the administration to analyze data on the
financial statements (Goodman, Neamtiu, Shroff & White, 2013). The use of present value and
future value will also help the organization to make decisions on the feasibility of the
opportunity because they are concerned with capital budgeting. The rate of return technique is
even more crucial to the organization’s decision regarding this investment because it helps to
determine the net income that the organization will get from an investment. The managers will,
therefore, be in a position to assess the possible revenue that the investment will generate and
then deduct it from the operating expenses to estimate the net income of the investment.
All future costs are relevant in decision making. Do you agree? Why?
Costs relevant in the decision-making process are known as relevant costs. This is
because they help the management to make specific financial decisions concerning an
organization. Relevant revenues and opportunity costs also need to be considered in decision
making. Past costs are irrelevant in decision making because they cannot be affected by the
DECISION-MAKING AND CAPITAL BUDGETING
4
choices that the firm makes in future. This means that firms make financial decisions hoping to
impact on future costs to reduce expenses and maximize profits.
Capital budgeting decisions fall into 2 broad categories: screening decisions and preference
decisions. Discuss this.
Capital budgeting involves the determination of whether the firm’s long-term investments
are feasible. The first category of capital budgeting decisions is the screening decisions.
Techniques adopted by this decision help to determine whether a specific investment meets the
cost/benefit analysis requirements (Noreen, Brewer & Garrison, 2014). In this case, the
organization will be in a position to determine whether purchasing the supplier will help them to
save money and whether this money is more than the interest they would have received if they
had invested elsewhere. Preference decisions on the other side refer to those choices that the firm
makes after comparing several alternatives that meet the screening criteria (Lane & Rosewall,
2015). These alternatives are ranked in order of desirability so that the best option is selected.
Which do you think EEC should use—screening decisions or preference decisions?
EEC should use preference decisions because they provide the firm with an opportunity
to compare different alternatives over time. Furthermore, the preference decision criteria ensure
that the business options are first screened to determine whether they meet the specific standards
for the firm and then later scrutinized to determine the most profitable selection. Preference
decisions provide the firm with a longer period of analyzing decisions so that the best alternative
is selected. Moreover, if the selected decision fails, then the firm is in a better position to move
on to the other alternative.
DECISION-MAKING AND CAPITAL BUDGETING
5
References
Goodman, T. H., Neamtiu, M., Shroff, N., & White, H. D. (2013). Management forecast quality
and capital investment decisions. The Accounting Review, 89(1), 331-365.
Lane, K., & Rosewall, T. (2015). Firms’ investment decisions and interest rates. Reserve Bank of
Australia Bulletin. June quarter, 1-7.
Noreen, E. W., Brewer, P. C., & Garrison, R. H. (2014). Managerial accounting for managers.
New York: McGraw-Hill/Irwin.
Eddison Electronic Company
Journal Entries 2005
“000” Omitted
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
Activity
Sales not on account
Sales on account
Selling Expense
Administrative Expense
Supplies Factory
Insurance Factory
Indirect Labor
Factory Salaries
Factory Property Tax
Maintenance Expense
Factory
Depreciation Expense
Factory
Utilities Factory
Purchases of Raw Materials
Direct Labor Factory
Raw Material Inventory,
January 1
Raw Material Inventory,
December 31
Work in Process Inventory,
January 1
Work in Process Inventory,
December 31
Finished Goods Inventory,
January 1
Finished Goods Inventory,
December 31
Bad Debt Expense
Accounts Receivable, net
Prepaid Expenses
Land
Plant and Equipment
Cash 1/1/05
Accounts Payable
Interest Expense
Notes Payable, 10%
Bonds Payable 8%
Stockholders’ Equity
Retained Earnings
Income tax rate
$29.440
28.060
3.220
6.210
3.450
920
6.900
288
173
2.001
3.726
828
17.250
3.450
2.070
1.380

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