Planning for profit and costcontrol

TASK1 Planning for profit and costcontrolObjectiveToenablethelearnertopreparethebudgetedprofitstatementandundertakecost-volume-profitanalysisfor decision making.Marksallocated 35 marksAnhadSdn. Bhd.manufactures car alarms,and its tradingresults fortheyearended 31 October2013 areasfollows:RM?000 RM?000Sales(800,000alarms) 7,200Costs:Materials:direct, variable 1,600Labour:direct,variable 96 0Labour:indirect, fixed 28 0Otherproduction overheads: variable 40 0Otherproduction overheads: fixed 64 0Sellingoverheads: variable 48 0Sellingoverheads: fixed 36 0Distribution overheads:variable 28 0Distribution overheads: fixed 12 0Administrationoverheads: fixed 60 0(5,720)Netprofitfor theyear 1,480Anhadisplanningnextyear?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 andnetprofitperunit.(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 ourbudgetedprofitistomultiplythenetprofitperunitbytheunitswewanttosell?.Whyisthisstatementincorrect?(3marks)TASK2 InvestmentappraisalObjectiveToenablethelearnertoevaluateandmakechoicesbetweendifferentprojects in which to invest.Marksallocated 35 marksSatnamBerhad is consideringdiversifyingtheirbusiness activitiesand theyarecurrentlyreviewingtwo proposals. Proposal A is to launch theirowntelevisionstation whilst Proposal Bis a joint venture with KaboorLimited to launchasatellitethat would enablethe Africanregiontoreceiveadvertisements forboth company?s products.Theavailable data is follows:Proposal A? TV StationInitialset-upcosts: RM250 millionAnnual runningcosts: RM100 millionEstimated lifeof project:5yearsValue ofassets releasedat the end ofthe project:RM40 millionIncreased sales as aresult of advertisingproducts:RM60 millionin the firstyear,growingcumulativelyby50%eachyear for thefollowingfouryears.Project B ? SatelliteInitialset-upcosts: RM700 millionAnnual runningcosts: RM50 millionValue 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,growingcumulativelyby20%eachyear for thefollowingfiveyears.Funding forboth projects would be at a cost ofcapital of 6%.Relevantdiscountfactorsat 6% p.a. are:Year Cumulative10.9430.9432 0.890 1.8333 0.840 2.6734 0.792 3.4655 0.747 4.2126 0.705 4.917Required:a) Usingthenetpresentvaluemethodofinvestmentappraisal,criticallyevaluatethetwoproposals and makeyourrecommendation to SatnamBerhad.(29marks)b) WhatotherconsiderationsshouldSatnamBerhadtakeintoaccountindecidingwhichProject to pursue?(6marks)ObjectivesToenablethelearnertoidentifytherelevantandirrelevantcostsandbenefitsassociatedwitheachfeasiblealternativewiththegreatestoverallnet benefit toaiddecisionmaking.Marksallocated 30 marksSwagat ManufacturingSdn. Bhd.needed to determineif it would be cheaper tomake10,000units of acomponent in-houseor to purchase them from anoutsidesupplierfor RM4.75 each.Cost information on internalproductionincludes the following:Total Cost Unit CostRM RMDirectmaterials 10,000 1.00Directlabour 20,000 2.00Variableoverheads 8,000 0.80Fixedoverheads 44,000 4.40Total 82,000 8.20Fixedoverheadwill continue whetherthecomponent is produced internallyor externally. Noadditionalcosts of purchasingwill be incurred beyondthepurchase 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 morecost effective andbyhowmuch?(15 marks)v!

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