Facts: A Chicago area company ("Company") has been manufacturing metal gas tanks for passengerautomobiles since The Company has always been a privately held family run business. The Company has been profitable for much of its history; retained earnings at the end of 20Xl was $20 million. Recently mandated EPA mpg requirements have caused automobile manufacturers to move to utilizingplastic gas tanks - which are much lighter than This change in materials helped automobile manufacturers reduce auto weights and meet the increased mpg requirements. The Company decided not to convert their operation to plastic gas tanks because their expertise was only in manufacturing metal products. A few years back, the owners were faced with two options: Liquidate and distribute available assets ormove into a different line of The Company decided to do the latter. The Company felt it could use itsexpertise to manufacture metal frames for televisions (like for Toshiba, Panasonic, etc.) The Company built a new manufacturing plant in Georgia for manufacturing these metal TV frames; the plant was financed with low interest rate IRBs (Industrial Revenue Bonds). The IRBs were for $25 million with a 20-year The Company has no other debt. Unfortunately, in its first two years of operation of the new metal picture frame plant- 20X2 & 20X3 - theCompany lost $11million and $8 million, The metal TV frame business is extremely competitive;sales prices of metal TV frames are quite low. The Company was simply unable to produce large quantities of metal frames at a cost which would enable the Company to generate adequate gross profit. You are finishing your Audit of 20X3 & discussed the Going Concern issue with the Company's management, including the family The owners/ managers feel they have no choice but to continueproducing metal TV frames - due to the 20-year IRB term. Management prepares financial projections for the next year which shows the Company breakingeven; the projections reflect a significant increase in the gross profit - it is unclear how management will improve their gross profit margin so Part 7 (Continued) Required: Part 7 State whether you believe there is or is not substantial doubt about the Company's ability to continue as aGoing Provide your supporting arguments, specifically addressing: Conditions and Events Management's Plans Please include references to the professional audit and accounting literature to support the position you takein your Case Analysis Paper.

Facts: A Chicago area company ("Company") has been manufacturing metal gas tanks for passengerautomobiles since The Company has always been a privately held family run business. The Company has been profitable for much of its history; retained earnings at the end of 20Xl was $20 million. Recently mandated EPA mpg requirements have caused automobile manufacturers to move to utilizingplastic gas tanks - which are much lighter than This change in materials helped automobile manufacturers reduce auto weights and meet the increased mpg requirements. The Company decided not to convert their operation to plastic gas tanks because their expertise was only in manufacturing metal products. A few years back, the owners were faced with two options: Liquidate and distribute available assets ormove into a different line of The Company decided to do the latter. The Company felt it could use itsexpertise to manufacture metal frames for televisions (like for Toshiba, Panasonic, etc.) The Company built a new manufacturing plant in Georgia for manufacturing these metal TV frames; the plant was financed with low interest rate IRBs (Industrial Revenue Bonds). The IRBs were for $25 million with a 20-year The Company has no other debt. Unfortunately, in its first two years of operation of the new metal picture frame plant- 20X2 & 20X3 - theCompany lost $11million and $8 million, The metal TV frame business is extremely competitive;sales prices of metal TV frames are quite low. The Company was simply unable to produce large quantities of metal frames at a cost which would enable the Company to generate adequate gross profit. You are finishing your Audit of 20X3 & discussed the Going Concern issue with the Company's management, including the family The owners/ managers feel they have no choice but to continueproducing metal TV frames - due to the 20-year IRB term. Management prepares financial projections for the next year which shows the Company breakingeven; the projections reflect a significant increase in the gross profit - it is unclear how management will improve their gross profit margin so Part 7 (Continued) Required: Part 7 State whether you believe there is or is not substantial doubt about the Company's ability to continue as aGoing Provide your supporting arguments, specifically addressing: Conditions and Events Management's Plans Please include references to the professional audit and accounting literature to support the position you takein your Case Analysis Paper.

Managerial Accounting: The Cornerstone of Business Decision-Making

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ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter10: Standard Costing And Variance Analysis

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Facts:

A Chicago area company ("Company") has been manufacturing metal gas tanks for passengerautomobiles since The Company has always been a privately held family run business.
The Company has been profitable for much of its history; retained earnings at the end of 20Xl was $20 million.
Recently mandated EPA mpg requirements have caused automobile manufacturers to move to utilizingplastic gas tanks - which are much lighter than This change in materials helped automobile manufacturers reduce auto weights and meet the increased mpg requirements.
The Company decided not to convert their operation to plastic gas tanks because their expertise was only in manufacturing metal products.
A few years back, the owners were faced with two options: Liquidate and distribute available assets ormove into a different line of The Company decided to do the latter. The Company felt it could use itsexpertise to manufacture metal frames for televisions (like for Toshiba, Panasonic, etc.)
The Company built a new manufacturing plant in Georgia for manufacturing these metal TV frames; the plant was financed with low interest rate IRBs (Industrial Revenue Bonds).
The IRBs were for $25 million with a 20-year The Company has no other debt.
Unfortunately, in its first two years of operation of the new metal picture frame plant- 20X2 & 20X3 - theCompany lost $11million and $8 million, The metal TV frame business is extremely competitive;sales prices of metal TV frames are quite low. The Company was simply unable to produce large quantities of metal frames at a cost which would enable the Company to generate adequate gross profit.
You are finishing your Audit of 20X3 & discussed the Going Concern issue with the Company's management, including the family The owners/ managers feel they have no choice but to continueproducing metal TV frames - due to the 20-year IRB term.
Management prepares financial projections for the next year which shows the Company breakingeven; the projections reflect a significant increase in the gross profit - it is unclear how management will improve their gross profit margin so

Part 7 (Continued) Required: Part 7

State whether you believe there is or is not substantial doubt about the Company's ability to continue as aGoing Provide your supporting arguments, specifically addressing:
- Conditions and Events
- Management's Plans

Please include references to the professional audit and accounting literature to support the position you takein your Case Analysis Paper.

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