TASK1    Planning for profit and costcontrol

Objective
Toenablethelearnertopreparethebudgetedprofitstatementandundertakecost-volume-profitanalysisfor decision making.
Marksallocated    35 marks

AnhadSdn. Bhd.manufactures car alarms,and its tradingresults fortheyearended 31 October2013 areasfollows:
RM’000    RM’000
Sales(800,000alarms)    7,200
Costs:
Materials:direct, variable    1,600
Labour:direct,variable    96    0
Labour:indirect, fixed    28    0
Otherproduction overheads: variable    40    0
Otherproduction overheads: fixed    64    0
Sellingoverheads: variable    48    0
Sellingoverheads: fixed    36    0
Distribution overheads:variable    28    0
Distribution overheads: fixed    12    0
Administrationoverheads: fixed        60    0
(5,720)
Netprofitfor theyear        1,480

Anhadisplanningnextyear’sactivityanditsforecastsfortheyearended31October2014areas follows:
1.    AreductioninsellingpricepercaralarmtoRM8peralarmisexpectedtoincreasesalesvolumeby50%.
2.    Materialscostsper unit will remainunchanged, but 5% quantitydiscount will beobtained.
3.    Hourlydirect wagerateswill increase by10%, butlabourefficiencywill beunchanged.
4.    Variableselling overheads will increasein total in line with the increasein salesrevenue.
5.    Variableproductionand distribution overheadswill increasein line with the 50%increase in sales volume.
6.    All fixed costs will increase by25%.

You arerequired to do the following:
a)    Prepareabudgetedprofitstatementfortheyearto31October2014showingtotalsalesandmarginalcostsfor theyearandalso contribution andnetprofitper

unit.
(16marks)
b)    Calculatethebreak-evenpointforthetwoyearsandexplainwhythebreak-evenpointhaschanged.Commenton the margin of safetyin bothyears.
(13marks)
c)    Calculatethesalesvolumerequired(usingthenewsellingprice)toachievethesameprofit in 2014 and in 2013.
(3marks)
d)    A directorcommentsthat‘with thesefigures, all we have to do to work out our

budgetedprofitistomultiplythenetprofitperunitbytheunitswewanttosell”.Whyisthisstatementincorrect?
(3marks)

TASK2    Investmentappraisal

Objective
Toenablethelearnertoevaluateandmakechoicesbetweendifferentprojects in which to invest.
Marksallocated    35 marks

SatnamBerhad is consideringdiversifyingtheirbusiness activitiesand theyarecurrentlyreviewingtwo proposals.  Proposal A is to launch theirown

televisionstation whilst Proposal Bis a joint venture with KaboorLimited to launchasatellitethat would enablethe Africanregionto

receiveadvertisements forboth company’s products.

Theavailable data is follows:

Proposal  A– TV Station
Initialset-upcosts: RM250 millionAnnual runningcosts: RM100 millionEstimated lifeof project:5years
Value ofassets releasedat the end ofthe project:RM40 million
Increased sales as aresult of advertisingproducts:RM60 millionin the firstyear,growingcumulativelyby50%eachyear for thefollowingfouryears.

Project B – Satellite
Initialset-upcosts: RM700 millionAnnual runningcosts: RM50 million
Value ofassets releasedat the end ofthe project:RM10 million(Note:all the above to be shared 50/50 with KaboorLimited)

Estimated lifeof theproject is 6years.

Increased sales forSatnamBerhadas aresultofadvertisingtheirproductsin the Africancontinent: RM80 millionin the firstyear,growing

cumulativelyby20%eachyear for thefollowingfiveyears.

Funding forboth projects would be at a cost ofcapital of 6%.Relevantdiscountfactorsat 6% p.a. are:

Year        Cumulative

1
0.943
0.943
2    0.890    1.833
3    0.840    2.673
4    0.792    3.465
5    0.747    4.212
6    0.705    4.917

Required:

a)    Usingthenetpresentvaluemethodofinvestmentappraisal,criticallyevaluatethetwoproposals and makeyourrecommendation to SatnamBerhad.
(29marks)
b)    WhatotherconsiderationsshouldSatnamBerhadtakeintoaccountindecidingwhichProject to pursue?
(6marks)

Objectives
Toenablethelearnertoidentifytherelevantandirrelevantcostsandbenefitsassociatedwitheachfeasiblealternativewiththegreatestoverallnet benefit to

aiddecisionmaking.
Marksallocated    30 marks

Swagat ManufacturingSdn. Bhd.needed to determineif it would be cheaper tomake10,000units of acomponent in-houseor to purchase them from an

outsidesupplierfor RM4.75 each.Cost information on internalproductionincludes the following:

Total Cost    Unit Cost
RM    RM
Directmaterials    10,000    1.00
Directlabour    20,000    2.00
Variableoverheads    8,000    0.80
Fixedoverheads        44,000         4.40
Total    82,000    8.20

Fixedoverheadwill continue whetherthecomponent is produced internallyor externally.  Noadditionalcosts of purchasingwill be incurred beyond

thepurchase price.

Required:

a)    List the relevant costof internalproductionandexternal purchase.

b)    Which alternative is more costeffectiveandbyhow much?

(4 marks)

(11 marks)

c)    Now assume that the fixedoverhead includes RM10,000 of costthatcanbe avoidedif thecomponent is purchasedexternally.Which alternative is more

cost effective andbyhowmuch?
(15 marks)

v
PLACE THIS ORDER OR A SIMILAR ORDER WITH US TODAY AND GET AN AMAZING DISCOUNT ??