GAAP are the general rules, regulations, and guidelines that accountants in the United States follow to ensure their practices are legal and ethical. Explain why these rules are necessary to make decisions that rely on LGI′s financial data. Scenario In your last business report, you recommended a strategic decision about the revenue target to make LGI competitive. In Project 3, you will help LGI′s leadership move the company forward on a path toward a sustainable future. The company needs to restore the confidence of shareholders and other stakeholders by maintaining a satisfactory level of operating performance. LGI, like all companies, needs robust earnings before interest, taxes, depreciation, and amortization (EBITDA). In other words, earnings must be sufficient to cover LGI′s investing activities, debt service, and taxes—with a healthy profit left for reinvestment and distributions to stockholders Your Project 3 business report will focus on strengthening EBITDA. To do this, you will analyze LGI′s cost structure and determine how to increase productivity. These tasks are prerequisites for identifying a future investment (Project 4) and how to finance it (Project 5). For the next two weeks, you will focus on the specific actions LGI can take to strengthen its EBITDA. You will analyze cost-volume-profit, pricing decisions, and activity-based costing. Log into O′Reilly by following these instructions before accessing the chapters and completing the required reading. Required Reading Davis, C. E. & Davis, E. (2011). Managerial Accounting. Wiley. Chapter 3: Cost-Volume-Profit Analysis and Pricing Decisions Section 3.1 to 3.3 Chapter 7: Activity-Based Costing and Activity-Based Management Sections 7.1–7.2 Recommended Reading Chapter 2: Cost Behavior and Cost Estimation Sections 2.1–2.3 Using the Project 3 Review and Practice Guide, review EBITDA and cost structures to set LGI on the path toward a sustainable future. Then apply what you have learned by completing the exercises and problems referenced in the Project 3 Review and Practice Guide. You must review the guide and do the practice exercises and problems so that you are prepared to have informed discussions with your team about LGI’s income statement, understand what the cost data reveal about operational efficiency, and can use this information to make recommendations for improvements. Complete the analysis calculation for the project: You have developed an in-depth understanding of LGI′s operating efficiency related to costing and the impact on EBITDA. You feel confident that your target revenue combined with a better mix of fixed and variable costs will positively boost LGI’s productivity, providing the company with a competitive edge. LGI will finally be on a path toward a sustainable future. Answer the questions in the Project 3 Questions – Report Template document. Prepare your analysis report including recommendations for how the company can improve its financial situation. Complete the analysis report for the project: Download the Project 3 Questions – Report Template Read the instructions. Answer all the questions. Include your recommendations. Answer 2 of the 3 questions below. 1. Discuss the concepts that were most challenging for you in the readings and review material. How did the practice exercises help clarify these? 2. What did you learn that will help you analyze LGI′s cost structure to increase its productivity and put the company on a path to a sustainable future? 3. Discuss why integrity, honesty, and transparency are essential in financial reporting and critical to your ability to manage and control LGI′s margins.
