ABC company's Risk ProfileNameACC206 : Principles of Accounting IIInstructorDateABC Company Risk ProfileThe ABC company is a manufacturing firm that specializes in making cedar roofing and siding shingles, with recent sales at $1.2 million, the company wants to reach the $3 million mark over the next3 years. As a newly hired Corporate Controller for this company, I have been assigned the task of developing and overlooking a new plan made by the CEO that will use some of the shingle scrap materials to build cedar houses. The newly develop plan will certainly bring new challenges for the company on the form of increased cost and labor; However it will also provide additional revenue and gross profit to help reach the growth targets. On this paper I would go over the details of the report made for the CEO that includes information on the overall risk profile based on actual market conditions, a current company cash flow, the product cost and any potential investments that might accelerate profits.The Risk profile for this company includes several different factors that are mostly due to current market conditions, and the level of risk the company will face by adding extra inventory and expenses. Unfortunately risk is a reality of doing business, whether the company is large or small, public or private, risk will always be present since nothing on the business world warrants a guarantee. Some of the key risk points are: Inventory represents a big portion of the cash flow, therefore having extra inventory on hand will have an impact on the company's future cash flow; payroll is also directly related to the cash flow since it takes a big portion of the monthly budget, therefore increasing the manufacturing capabilities of the factory as well as adding a new line of production will increase the payroll thus having an impact on cash flow reports; Economic downturn, that might affect prices of inventory to be purchased, therefore affecting the potential growth as well as having an impact on reaching forecasted company goals.ABC Company's current financial information (before/without expansion)Dec. 31,19X2 Dec. 31,19X1 Cash $5,000 $7,000 Accounts receivable (net) $12,000 $18,000 Merchandise inventory $35,000 $28,000 Property plant, & equipment $40,000 $30,000 Less: Accumulated depreciation $(17,000) $(10,000)Total assets $75,000 $73,000 Accounts payable* $25,000 $21,000 Income taxes payable $4,000 $1,000 Common stock $24,000 $24,000 Retained earnings $22,000 $27,000 Total liabilities & stock, eq $75,000 $73,000 The firm's accrual-basis income statement revealed the following data:Sales $ 120,000 Cost of goods sold $ 80,000 selling and administrative expenses $ 25,000 Depreciation expense $ 7,000 Income taxes $ 3,000 Dividends declared and paid during 19X2 $ 10,000 ABC purchased $10,000 of equipment for cash on August 14.Cash Flow ( Direct method)Cash received from customers 12000less cash paid for:Inventory 63000Salaries 46000Rent 32000InterestOther operating expenses 40000Income Taxes 3000 184000Net cash provided by operating activities (172000) What does this statement of cash flow tell you about the sources and uses of the company?The cash flow statement provides a view of the relationship between the income statement and the balance sheet, as per the information reflected on this statement, the sources of income come from regular sales and the sale of stocks.ii. Is there anything ABC Company can do to improve the cash flow?The ABC company will be able to benefit and improve the cash flow by placing more stocks for sale, working towards reduction of inventory, selling some of the assets that are not directly linked to the ability of production by the company, and improving the collections method of the accounts receivable.iii. Can this project be financed with current cash flow from the company? Why or why not?Unfortunately the current cash flow from the company (-$172000) would not allow the financingof the future manufacturing addition, having to increase the inventory as well as the payroll among other expenses will undoubtedly increase the pressure on the firm towards reaching higher performing goals.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 companyobtain the additional financing, equity or corporate debt, and why?The best way of getting working capital for the ABC company will be by first offering stocks available to the public and private investors, second factor that can be used to the company's advantage will be offering a percentage of equity on the company in return for a good investmentthat will guarantee the coverage of all future expenses and purchase of materials; lastly getting loans from lenders can be perhaps the last option available if the previous two don't work, since capital financed will incurred on the accumulation of interest. 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. ABC Company expects that it will take twice as long to produce the expansion product as it currently takes to produce its existing product. ABC's Product informationCurrent ProductExpansion Product(estimate)Selling Price$12.00 $16.80Units produced and expected to be sold 80,000 5,000Machine Hours 40,000 5,000Direct Materials $1.30 per unit $5.60 per unitDirect labor dollars needed per product $2.80 per unit $4.00 per unit Variable Factory Overhead $1.00 per Machine Hour $1.00 per Machine Hour Variable Selling Expense $0.20 per unit $0.20 per unit Total Fixed Costs:Fixed Factory Overhead $ 198,000Fixed Selling expenses $ 191,250What is the product cost for the expansion product?$48000 Assuming ABC Company wants a 40% gross margin for the new product, what selling price should it set for5the expansion product? $16,80Assuming the same sales mix of these two products, what are the contribution margins and break-even points by product?Sales 80,000 per