Week Five Final Paper
ABC Company Cost Analysis
Robert Morgan
ACC206
Stacy Hiles
September 1, 2014
ABC Company Cost Analysis This analysis will examine whether or not adding cedar doll houses to its product line will be both profitable and cost effective. Additionally, it will conduct a risk assessment evaluation of the new product line by examining the direct effect it has on the company’s cash flows. In order to help the CEO arrive at an informed decision, product costs, potential revenues, break-even points and level of return will be examined. Following the assessment, a recommendation will be made that summarizes the overall profitability and level of return this venture will have. Initially, ABC Company will incur various economic risks from raw material pricing to labor. “The determination of anticipated volume should be based on prior sales patterns, economic conditions, competitive actions, and so forth. Where a company has multiple products, consideration must be given to each,” (Aguiar, 2012). As such, should a rise in raw material cost become a factor then expenses associated with production might pose a problem. Additionally, environmental and regulatory concerns must be assessed as with likewise competition. In order to properly evaluate the competition, a thorough market analysis should be completed. ABC Company needs to be aware of its competition and any potential harm it may possess. According to a model originated from Michael E. Porter’s 1980 book Competitive Strategy: Techniques Companies Use, Weber, W., & Polo, E. (201), there are five factors that can pose a threat and can have a harmful effect. These forces are bargaining power of suppliers, threat of substitutes, bargaining power of buyers, threat of new entrants and competitive rivalry. Economic factors such as inflation, reduction in capital and efficiency of production can also pose a risk to the company. ABC Company must carefully weigh all options before
Robert Morgan
ACC206
Stacy Hiles
September 1, 2014
ABC Company Cost Analysis This analysis will examine whether or not adding cedar doll houses to its product line will be both profitable and cost effective. Additionally, it will conduct a risk assessment evaluation of the new product line by examining the direct effect it has on the company’s cash flows. In order to help the CEO arrive at an informed decision, product costs, potential revenues, break-even points and level of return will be examined. Following the assessment, a recommendation will be made that summarizes the overall profitability and level of return this venture will have. Initially, ABC Company will incur various economic risks from raw material pricing to labor. “The determination of anticipated volume should be based on prior sales patterns, economic conditions, competitive actions, and so forth. Where a company has multiple products, consideration must be given to each,” (Aguiar, 2012). As such, should a rise in raw material cost become a factor then expenses associated with production might pose a problem. Additionally, environmental and regulatory concerns must be assessed as with likewise competition. In order to properly evaluate the competition, a thorough market analysis should be completed. ABC Company needs to be aware of its competition and any potential harm it may possess. According to a model originated from Michael E. Porter’s 1980 book Competitive Strategy: Techniques Companies Use, Weber, W., & Polo, E. (201), there are five factors that can pose a threat and can have a harmful effect. These forces are bargaining power of suppliers, threat of substitutes, bargaining power of buyers, threat of new entrants and competitive rivalry. Economic factors such as inflation, reduction in capital and efficiency of production can also pose a risk to the company. ABC Company must carefully weigh all options before