Chief Executive Officer CEO of Durango Manufacturing Company Essay

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1. As the consultant, create an argument that you will present to the CEO that suggests accounting and financial management knowledge and skills will be essential to the company’s success and stability over the next five (5) years. Provide support for your argument.

As a consultant to the Chief Executive Officer (CEO) of Durango Manufacturing Company, I have established that the firm has a weakened pecking order in terms of accounting and financial structure, lack of proper segregation of duties, lack of properly delineated responsibilities, lack of highly trained and proficient medium level and high level managers. Accounting and financial management knowledge and proficiencies will be pivotal to the success and stability of the corporation over the next five years.

The first individual within the structure is the accounting manager or controller. This position usually deals with responsibilities for all activities associated with accounting. These duties more often than not comprise of financial accounting, cost accounting, taxes, as well as data processing. It is imperative to note that accountants are liable for the development of financial reports and metrics, their proficiency and competencies aid managers in the assessment of previous performance and future direction of the company and accomplishing particular legal obligations like being compliant with SEC regulations and the Sarbanes-Oxley Act.

There is the financial manager or treasurer who is higher up the pecking order. This individual is usually concerned with the procurement, custody, and expenditure of finances. The responsibilities comprise of financial planning, capital budgeting analysis, management of cash and marketable securities in addition to credit analysis. Imperatively, a financial manager fundamentally deals with the cash flows of a corporation. The financial manager is of great importance to a firm owing to the fact that cash flows are a determining factor of the feasibility of particular investment and financing decisions. Furthermore, a financial manager has great competence regarding the impact of monetary policies on the accessibility of credit and also cost of funds. Therefore, this is beneficial in guaranteeing that the firm has the ability to borrow for new projects or other outlays (Brigham and Ehrhardt, 2011).

2. Suggest to the CEO how the company’s stakeholders (investors, lenders, and employees) will use financial statement information and ratio calculations to make key determinations related to the financial condition and operational efficiency of the company. Provide support for your rationale.

Financial statements and financial ratios are imperative to different corporate stakeholders to make important determinations associated to the financial condition as well as operational efficiency of Durango Manufacturing Company. The employees use financial statements in order to have a better understanding of the business, how to improve it in general and also to increase the level of employee engagement. Investors are essentially the owners of the company. Taking this into consideration, financial statements and ratios are important in order to comprehend the performance of their investment. For instance, the investors will examine profitability ratios such as profit margin and return on equity to determine the financial performance of the company in terms of the returns generated from the investment. In addition, lenders necessitate financial statements so as to approximate the capability of the company to reimburse all of the loaned finances and associated interest charges. Basically, lenders want to make certain that the company is able to pay back the funds. In this regard, the lenders examine the profit generated by the company and also liquidity ratios. Liquidity ratios such as quick ratio and acid ratio make a determination of whether the company is able to pay its debt obligations. Other key stakeholders that necessitate the financial statements of the company are management. The management team necessitates to comprehend the profitability, liquidity, and cash flows of the business on a monthly, quarterly or yearly basis, in order to make operational and financing decisions about the business (Weygandt et al., 2012).

3. Given the strategy to increase revenue during the five (5) year plan period, which will need to be achieved through expansion and capital expenditures, determine which capital budgeting ratio is appropriate for Durango to evaluate its proposals for capital expenditures, such as NPV, IRR, etc. Defend your position.

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The capital budgeting ratio that is suitable for Durango to examine its proposals for capital expenditures is net present value (NPV). The net present value rule is the notion that corporate managers and investors ought to solely invest in projects, or take part in transactions that have a positive net present value (NPV). They ought to evade making an investment in projects that have a negative net present value. The assessment of the NPV of a project must incorporate computing the project’s future net cash flows, discounting these at the appropriate cost of capital to attain their present value, subtracting the initial capital cost or net investment expenditure, at the project commencing period. The NPV makes the assumption that cash inflows will be invested back at the similar rate that is the necessary rate of return or the rate at which cash inflows are discounted (Drury, 2004). NPV has a number of features which meet the requirements of making it be deemed as the best method. These take into account that NPV measures profitability of a corporation and can facilitate the adjustment for risk, takes into account all cash flows, alters for time value of money, is in line with the wealth maximization goal and makes realistic suppositions regarding the reinvestment of intermediate cash inflow (Bhandari, 2009).

4. In order for the company to improve its operational efficiency, recommend which production departments should use process, job order, and activity-based costing—all three (3) of which must be implemented within Durango. Defend your choice for each department.

A great deal of corporations employs a process cost system when partaking in the manufacturing of large volume of products that are similar. Imperatively, the production undertaking is an incessant practice and therefore process costing amasses product associated costs for a period of time rather than assigning and allocating costs to specific products. Taking this into consideration, it is deemed that for the newly planned manufacturing facility for Durango, the corporation should use process costing system. Secondly, one of the significant costs incurred by the company is wages and salaries for employees. It is recommended that Durango manufacturing company should employ activity based costing system to facilitate the tracking of wages. This approach is considered to be progressively more efficacious for the company owing to the reason that it gives rise to increased control over overhead expenditures (Weygandt et al., 2012).

5. The CEO would like to consider outsourcing his manufacturing operations if labor can be supplied cheaper overseas than in the U.S. Create an argument either for or against outsourcing the manufacturing operation to a foreign country. Your argument should include key points that support your position. The key points should address economic and business management aspects related to outsourcing.

One of the key considerations that companies have to contend with is whether to partake in internal manufacturing or outsource such work to external vendors. The CEO of Durango Manufacturing Company is taking into consideration outsourcing the manufacturing operations of the company if the supply of labor is cheaper overseas as compared to the United States. There are arguments for and against the company outsourcing the manufacturing operations.

Arguments for Outsourcing

i. One of the key arguments for outsourcing the manufacturing operations is that it can increase the profits generated by the company. In general, firms make the decision to outsource the manufacturing of goods and services if there is the perspective that it will result in cost savings, and therefore increase firm profits. For instance, through cheaper labor, the company is able to reduce the expenses incurred and therefore increasing the profit levels. Some of the….....

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