Finance-QA258 Online Services


Part 1: New Product Introduction

Chemical Company A is evaluating the market introduction of a new product in the year 2018. The introduction of the new product would need some capital expenditures and management would like to know if the investment makes financial sense.

Marketing information

Management has asked a specialized consulting company to evaluate the market potential of the product and the consultants have just now finished their work to the full satisfaction of the management. Based on a detailed analysis of the market trends, the consulting company is expecting a relative short life cycle of four years for the product. Starting in 2018, the product will generate annual sales (=cash ins) of USD 55 (all figures in 000) until the year 2021. Management feels that these figures are realistic.
The fee of the consulting company to develop the market data is USD 10. As management is satisfied with the analysis of the consultants, the chemical company will definitely have to pay this amount towards the end of year 2017.


Besides the mentioned investment in the consulting study of USD 10, the chemical company would need to invest USD 100 at the end of year 2017 for the new machinery. The supplier has offered the installation as a turnkey project and guarantees the price. The machinery is supposed to hold a total of four years. At the end of the four year period, the machine would be worthless. It would then be removed by the supplier without any additional costs to the chemical company.

Operating Costs

The machine would be operated by the personnel of the supplier during the whole four year period. For the planned sales volume, the supplier has offered to operate the machinery for annual operating costs (=cash outs) of USD 10. This amount contains all costs for direct material, labor, maintenance…. No other operating costs will be incurred for the chemical company during the whole four year period.

Corporate Costs

Unfortunately, the chemical company is known in its industry for its large corporate overhead. Even though the company entered a major cost cutting initiative in recent years and will be decreasing costs significantly in the future, the corporate head office with central departments like legal, human resources and finance is still very large. In order to pay for these overhead departments, the controller of the company has decided to allocate overhead costs based on net sales figures. Each product has to contribute with 2% of its net sales volume for covering the overhead costs. Even though the proposed project is very small compared to the overall size of the company and will definitely not have any incremental impact on the corporate overhead, the 2% rule will still apply according to the controller. Based on the planned annual net sales of USD 55, the controller is planning to charge an annual amount of USD 1.1 in case the new product is introduced.

How it Works

How It works ?

Step 1:- Click on Submit your Assignment here or shown in top menu of every page and fill the quotation form with all the details. In the comment section, please mention product code mentioned in end of every Q&A Page. You can also send us your details through our email id with product code in the email body. Product code is essential to locate your questions so please mentioned that in your email or submit your quotes form comment section.

Step 2:- While filling submit your quotes form please fill all details like deadline date, expected budget, topic , your comments in addition to product code . The date is asked to provide deadline.

Step 3:- Once we received your assignments through submit your quotes form or email, we will review the Questions and notify our price through our email id. Kindly ensure that our email id  must not go into your spam folders. We request you to provide your expected budget as it will help us in negotiating with our experts.

Step 4:- Once you agreed with our price, kindly pay by clicking on Pay Now and please ensure that while entering your credit card details for making payment, it must be done correctly and address should be your credit card billing address. You can also request for invoice to our live chat representatives.

Step 5:- Once we received the payment we will notify through our email and will deliver the Q&A solution through mail as per agreed upon deadline.

Step 6:-You can also call us in our phone no. as given in the top of the home page or chat with our customer service representatives by clicking on chat now given in the bottom right corner.


Features for Assignment Help

 Zero Plagiarism
We believe in providing no plagiarism work to the students. All are our works are unique and we provide Free Plagiarism report too on requests.
We believe in providing perfect, relevant and 100% accurate solutions to the student as per questions asked. All our experts are perfect in providing that so as to give unique experience to the students.
Three Stage Quality Check
We are the only service providers boasting of providing original, relevant and accurate solutions. Our three stage quality process help students to get perfect solutions.
100% Confidential
All our works are kept as confidential as we respect the integrity and privacy of our clients.

Related Services


The weighted average cost of capital (after tax) of the chemical company is 6%. As a result, the discount factors for each of the year of operations are as follows
2018 2019 2020 2021
0.9434 0.8900 0.8396 0.7921

Tax rate

The tax rate of the chemical company is 50% over the whole planning horizon.


Based on current tax regulations, the company has to apply straight line depreciation over the four year life time of the machinery. Depreciation will start in the year when the first sales are realized.
Please determine if the company should undertake this project from a financial standpoint. In case you feel that information is missing, please feel free to make any additional assumptions. Explicitly clarify your assumptions about what to include or exclude in the calculations.

Part 2: Product Costing

Chemical Company A is currently using a full absorption costing system, allocating all overhead costs to the products. In recent times, the marketing department has tried to convince the Corporate Controller to implement a direct costing system throughout the company, removing the cost allocations. As a consultant, you have been asked to provide an outside opinion about the implementation of a direct costing system.
2.1. Please provide a short memo to the controller, convincing him or her why the implementation of a direct costing approach might add value to the company. Keep in mind that the chemical industry is characterized by large fixed assets and, as a result, significant depreciation expenses in the income statement. Provide specific disadvantages of the current approach and advantages of the direct costing approach for a chemical company.
2.2. The company currently maintains 15 global manufacturing sites and 75 sales companies in different countries around the globe. Currently, each manufacturing site determines the full absorption cost of each product and bills these costs – incl. a margin – to the different sales companies. As a result, some products cannot be sold in certain markets as the transfer prices exceed the market prices in these markets. Could the direct costing approach help in this situation? Please explain.

Product code:Finance-QA258

Looking for Finance-QA258,please click here

User Rating
5 based on 1 votes
Posted in Q&A