Intermediate Accounting Essay

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Intermediate Accounting

If you were put in the place of Steve Gasper, would you argue for the cost from market testing to be included as a cash outflow?

As an outsider, Gasper possibly having experience in other businesses would likely be interested in seeking transparency rather than an overzealous representation of possible benefit over risk of the introduction of a new product. The cost of test marketing can be substantial and may need to be increased to broaden the national understanding of the potential sales of the product. Though it is not stated in the case study the brand loyalty to the formerly eastern and western-based products could differ still and a small regional test may not have been enough to determine the market potential of the new product, Blast. For this reason the costs already incurred in test marketing as well as projected costs for national/initial test and introduction marketing should be included in the past and projected cash outflow for Blast. Even if the product is not launched the product has incurred costs to the company that should be a part of a transparent representation of the total cost to the company to research, develop and market the new product.

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In fact if I were Gasper I would also suggest that any other research and development costs incurred by the company also be included in a transparent representation as the whole picture of the product. As the product needs to be represented so that those in the know understand that there has been considerable investment in the development of this new product and that the initial income from it may need to be allocated back to the company to restore expenditures already incurred. This should include any cash outflow that might go into future marketing, as well as the development of production facilities. The whole picture must show a balance between expenditures and income from the new product so the group is aware of already incurred investment and real potential increased income.

Essay on Intermediate Accounting Assignment

Gasper would, among those noted likely have the most non-traditional (i.e. anti-steadfast company policy) take on how the financials should be presented both internally and externally to develop a realistic rather than over positive view of the new potential product. Gasper would also likely have the least amount of buy in for the traditional products and be more likely to see the whole picture as a financial one rather than a potential high yield risk that steps away from the two product standard of the company. Representing a massive change in company restructuring, which is clearly being done here, as previously the company relied on only two products and is now proposing a third should be fully and completely understood, especially given the fact that the product potential for cutting into sales of the two traditional products is possible and likely in this scenario. A full picture must be developed that includes research marketing as well as several other factors to come to the conclusion that Blast will serve not as a complicated shift in product sales that will bring the company back to current sales by eating away at the sales of other products but will prove profitable independently beyond marketing expenditure and other expenses.

Finally, marketing of the two primary products of the company is likely to have remained relatively constant and minimal in the last few years as the products have stabilized and have considerable brand recognition and loyalty, therefore any research or initial marketing expenditures for Blast are likely to be a large and fundamental investment for the company in the past and present and need to be considered fully to be appreciated.

2. Would you suggest that the product be charged for the use of excess production facilities and building?

The excess production facilities of this company have likely been a sore spot for a long time, as the space itself likely has some nominal to substantial cost to maintain and yet is not yielding the company any profit. Though it is clear that the use of these facilities to produce a new product will increase the costs of their existence previously they have simply been a liability. In fact it would be good to see the use of existing surplus space and facilities as a bonus of the introduction of a new product, especially considering that the company has a strict no-let no-lease policy for outside companies. In other words as the company has no intentions of changing their policy regarding the lease or rent of surplus facilities to outside companies the use of such space by the company itself, in the black is essential to growth of the company and the resolution of wasteful overhead expenditures, maintaining the facilities unused.

Though the cost difference between a skeletal maintenance of the currently unused production facilities, and that of the change needed to make Blast should definitely be considered the new product should not be charged for the use of existing unused production facilities. The utilization of a former liability to the company, i.e. empty or underutilized production facilities should be considered a benefit rather than a liability for the new product. Especially considering that the product has the potential for expansion given its more modern constitution and ease of use.

The product itself could virtually replace the existing powder products in the future and would never be asked to account for the utilization of additional underutilized space if it were showing a high yield profit in the next 15 years. Historical brand loyalty both internally and by the market could challenge this idea that the new product, if marketed correctly, has the potential to demand the offset space created by a reduction in production of the two existing products. The new brand could also create the need for expanding production facilities if such space is needed in the technical production of the new product. Yet, including a virtual "rent" of surplus space seems overboard on product accountability and the likelihood of its suggestion may be in part associated with greater than needed fear that the development of this new product might overly reduce the sales of former products as they have been the mainstay of the company for a long time. Any company relying on only two products for their entire income should be careful of any other product that threatens the sales of these two products yet, it is also clear that if change is not made, especially regarding potentially better products the company may be left in the dust and charging a potentially positive internally developed product rent may be going to far, as a litmus for its positive potential. If the product had less positive potential according to marketing tests this might be warranted but this does not seem to be the case.

It is unknown if the product will use more or less space than existing products to make as this is not divulged in the financial case study. It is assumed therefore that this product will be more streamline in production due to the current research and development team being focused on the same sort of reduction of waste that created the surplus space in the existing production facilities. This assumption is based on the fact that the sales of existing products has increased fundamentally since 1968 and that facilities were expanded at some point to meet this need and then space was scaled back as a result of streamlining production rather than decreased production of the product lines. It is very unlikely that the original plant facilities were built at greater than 50% capacity to support only future growth but were likely closer to capacity prior to the streamlining of production.

3. Would you suggest that the cash flows resulting from erosion of sales from current laundry detergent products be included as a cash inflow? If there were chances of competition introducing a similar product if you do not introduce Blast, would this affect your answer?

Potential losses associated with new product erosion on existing brands should be considered as part of the products cash flow but should also be considered, as it has been above in the decision to go into full production of Blast. In other words both exhibit 1 and 2 should be included in the full picture of the product but the liability to former products should not be the only consideration as the new product shows great potential for growth as a multi-purpose eco-friendly innovation. Balancing the previous brand loyalty and the potential loss of sales of old products with the potential growth in market shares should be the focus of the development of any new product. As the potential future cash-flow for the new product could increase market shares in the industry and is real cash-flow for the company the erosion is only on paper and possibly associated with the company's dogged desire to shelter its two product line base.

The potential for a competitor to itself create… [END OF PREVIEW] . . . READ MORE

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APA Style

Intermediate Accounting.  (2009, August 26).  Retrieved May 27, 2020, from

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"Intermediate Accounting."  26 August 2009.  Web.  27 May 2020. <>.

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"Intermediate Accounting."  August 26, 2009.  Accessed May 27, 2020.