Managerial Accounting Assignment 2022

Please analyze this case and write a report where it lists the problems/issues in the company, alternatives to approach it, calculations that are required and also make recommendations based on the issues. I need a report written on the analysis of this case.

Running Head: MANAGERIAL ACCOUNTING
Managerial Accounting
Name of the student
Name of the university
Author’s note

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MANAGERIAL ACCOUNTING
Executive summary
The project studies different alternatives for producing a new line of products. It compares the
expected profitability of different plans by calculating the NPV of each investment style. It also
examines the crucial matter of concern highlighted in the case study to give a proper
recommendation. It concludes whether the Newall Industry should consider the plan of
manufacturing the new product line of hats, mittens, and gloves or outsourcing the new items
from outside.

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Table of Contents
Introduction......................................................................................................................................3
Discussion........................................................................................................................................3
Conclusion and recommendation....................................................................................................5
References........................................................................................................................................7

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MANAGERIAL ACCOUNTING
Introduction
Any prospective business always faces circumstances that put managers in a dilemma to
think which investment proposal is more profitable than the other. Managers take these decisions
by calculating the results by different costing methods. The profitability of different investment
proposals is considered by calculating the net present value of the investment. NPV is calculated
by discounting the future cash flows of the investment by a specific discounting rate which is the
estimated cost of capital.
Discussion
Newall Manufacturing wants to produce a new product line similar to its existing product
line. The industry has three options, as per the case study.
First option- Manufacturing the product in- house as most of the raw material and way of
production would be similar. The new machinery which the industry has purchased and the
initial working capital invested is the initial investment for the proposal. The net present value of
the proposal is $4732.25. The IRR of the project is 16%. The positive NPV shows that the
production of the new items in-house is profitable. The positive side of this proposal is that the
company needs not to depend on outside funds or bank loans as the company has sufficient
balance for purchasing the machinery. It clarifies that there will be no additional cost of debt for
purchasing the machinery.
Year 0 1 2 3 4 5
cost of new machine -40000
Salvage 2000
Initial working capital
investment -6000 6000
average unit sales range 7000 9000 11000 9000 8000
average wholesale price $13 $13 $13 $13 $13
Revenue $91,00 $117,00 $143,00 $117,00 $104,00

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0 0 0 0 0
Material cost
$17,50
0 $22,500 $27,500 $22,500 $20,000
Labour cost
$35,00
0 $45,000 $55,000 $45,000 $40,000
overhead(variable) 8400 10800 13200 10800 9600
overhead(allocated) 21000 21000 21000 21000 21000
Total expense
$81,90
0 $99,300
$116,70
0 $99,300 $90,600
Depreciation 7600 7600 7600 7600 7600
EBT $1,500 $10,100 $18,700 $10,100 $5,800
Tax 420 2828 5236 2828 1624
EAT $1,080 $7,272 $13,464 $7,272 $4,176
Cashflow -46000 $8,680 $14,872 $21,064 $14,872 $11,776
NPV
$4,732.2
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IRR 16%
Second option – If the industry outsources the new line of the product then the expected quoted
price of the product is $9 per unit of the product. There is no initial investment in it but the
company is incurring the cost of purchasing the new products from outside. The NPV for this
proposal is $90758.61. The positive net present value shows that this investment proposal is also
profitable. The management is right from its perspective that the idle capacity is a matter of
concern. But the idle capacity should be converted into relevant data to represent value to
consider it in estimating the wholesale price. Since there is no exact data given for the idle
capacity, it is not included in calculating the profitability from the second investment option (Lee
& Shin, 2018).
Year 0 1 2 3 4 5
average unit sales
range 7000 9000 11000 9000 8000
average wholesale
price $13 $13 $13 $13 $13
Revenue
$91,00
0
$117,00
0
$143,00
0
$117,00
0
$104,00
0
supplier quoted 63000 81000 99000 81000 72000

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price
EBT
$28,00
0 $36,000 $44,000 $36,000 $32,000
Tax $7,840 $10,080 $12,320 $10,080 $8,960
EAT
$20,16
0 $25,920 $31,680 $25,920 $23,040
cash flow
$20,16
0 $25,920 $31,680 $25,920 $23,040
NPV
$90,758.6
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Third option- The input which can be purchased from FABLAND are cheaper than any other
products available in other parts in Canada, but the quality is worse than other Canadian product.
The industry has goodwill for its good quality products. Kerry should not compromise the
quality of products as it can affect the goodwill of the industry in the long term. Besides, the
industry has other alternatives that are also profitable. Therefore it should not compromise its
goodwill for making short term gains (Sun & Zhang, 2017).
Conclusion and recommendation
The report concludes that the two options considered by the management are profitable.
Both options are giving positive net present value making investment proposals advantageous.
The third alternative is also studied as proposed by Kerry, an important stakeholder who thinks
the cost of the new product line can be purchased from an industry called FABLAND. The report
concludes that the industry should consider the continuous long term gains over huge one-time
short time gains to continue as a going concern industry.
Thus it is recommended to the management of Newall Manufacturing Inc. that it should
select the second option to outsource the new line items as it has the highest NPV than other
alternatives. Besides, the plan has no huge initial capital investment. If the company feels that the

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profits are not as expected and there is more idle capacity, it can shift its plan to plan one but
after purchasing the machinery, the company would not be able to switch to another plan as it
has a huge capital investment.
References
Lee, I., & Shin, Y. J. (2018). Fintech: Ecosystem, business models, investment decisions, and
challenges. Business Horizons, 61(1), 35-46.
Sun, L., & Zhang, J. H. (2017). Goodwill impairment loss and bond credit rating. International
Journal of Accounting & Information Management.