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You report to Jon Allen, the president and owner of AFC, as the corporate controller

Knowing AFC's strategy to double its sales in the next two years, the president has asked you to research companies that have accomplished this or want to accomplish this. The research should include the following:

example companies
strategies to implement
potential risks

Based on your findings, what relevant information should AFC focus on to successfully accomplish its three year short-term and long-term strategies?

Scenario is below:

Allen Frame Company (AFC) is a privately owned family corporation that designs and manufactures picture frames for artist and retail stores. AFC also provides a custom framing service to individual artists. AFC began two years ago when the Allen family acquired a bank loan for $100,000. AFC has grown to $800,000 in sales for 2005. $700,000 of its sales came from the manufacturing of picture frames, and $100,000 in sales were from the custom framing service it provides to individual artists. AFC sees its manufacturing business growing rapidly over the next three years.

Click here to view accounting and operational activity that has occurred over the first two years of operation.

Assume that all transactions were cash transactions except for adjusting entries for depreciation.

In 2004, AFC manufactured 17,000 picture frames and sold 15,000 picture frames. It completed and sold 1,000 custom framings for artist customers.

In 2005, AFC manufactured 23,000 picture frames and sold 20,000 picture frames. It completed and sold 1,000 customer framings for artist customers.

The AFC management team feels it can increase framing production by 25% without increasing fixed costs. AFC, however, would like to double its revenue over the next two years. This will require a $75,000 increase in its fixed costs for the addition of manufacturing space, equipment, and salaries.

Some of the issues that will confront management during this growth period is maintaining the level of expertise in the design and manufacturing areas and developing the level of competence to control a family business of this size.

Management is also concerned about growing its profitability to become a publicly traded corporation within the next five years, pay a reasonable bonus to key management, and maintain its ability to pay a competitive wage and salary (when compared to the industry standards). These concerns focus AFC's responsibility to its current customers and its current family share holders and will influence how AFC classifies these costs by recording them as assets or expenses. Additional concerns include the following:

Should AFC purchase/build a manufacturing facility or continue to pay rent?
Should AFC consider outsourcing some of its manufactured products, and if so, will it maintain a competitive cost structure to price its frames at a competitive level?
How should AFC determine its pricing strategy when customers are concerned mostly about price?

You report to Jon Allen, the president and owner of AFC, as the corporate controller. You have been asked to evaluate the first two years' performance and research the possible problems AFC may encounter during this growth period.


Solution Preview

The best examples here are the Asian companies. New money and relaxed rules make it easier for startups to get airborne. Furthermore, consumers in Asia have new spending power, and technologies such as the Internet and cellular telephony are creating opportunities for entrepreneurs from Seoul to Singapore.

Air Asia of Malaysia and India's Air Deccan have taken advantage of airline deregulation and are now among the fastest-growing carriers in the region. In South Korea, one of the hottest new brands is ...

Solution Summary

In about 343 words with no references, this solution discusses Samsung and Asian airlines when considering companies that have doubled sales and done well in the market.