ASSIGNMENT

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BMAC5203
ACCOUNTING FOR BUSINESS DECISION MAKING
JANUARY SEMESTER 2020

SPECIFIC INSTRUCTION

1. Answer in English or Bahasa Malaysia.

2. Submit your assignment ONCE only in a SINGLE file.

3. Submit your assignment ONLINE.

4. Submission date: 6 APRIL 2020.

5. This assignment accounts for 100% of the total marks for the course.

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 ASSIGNMENT QUESTION

TASK 1 (30 MARKS):

OBJECTIVE: The purpose of this assignment is to enable learners to understand organizations’ financial
plans for revenues and expenses and budgets uses for controlling routine operations and financing
decisions.

REQUIREMENT: Budgets and Budgetary Controls

QUESTION 1 : CLO4

Kotak Kayu manufactures two types of wooden crates used to ship bottled food and drinks. Type B and type
C crates have the following material and labour requirements.

Type B Type C
Direct materials per unit:
Wood X (RM0.30 per meter) 20m 30m
Wood Y (RM0.15 per meter) 30m 70m

Direct labour per unit (RM18 per hour) 0.25hour 0.50hour

The following manufacturing overhead costs are budgeted for the coming year. The predetermined
overhead rate is based on a production volume of 3,950 units of Type B and 5,950 units of Type C.
Manufacturing overhead is applied on the basis of direct labour hours.

RM
Indirect materials 15,750
Indirect labour 75,000
Utilities 37,500
Tax 27,000
Insurance 24,000
Depreciation 43,500
Total 222,750

The following inventory information is available for the coming year:

Inventory 1 Jan 2020 Desired ending inventory 31 Dec 2020

Finished Units:
Type B 100 50
Type C 200 150
Direct materials:
Wood X 15,000m 5,000m
Wood Y 5,000m 10,000m

The sales forecast is as follows:

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 Sales volume Sales price
Type B 4,000 units RM135 per unit
Type C 6,000 units RM195 per unit

The following selling and administrative expenses are anticipated:

RM
Salaries of sales personnel 112,500
Advertising 22,500
Management salaries 135,000
Clerical wages 39,000
Miscellaneous administrative expenses 6,000
Total 315,000

Required:

Prepare an annual budget for Kotak Kayu for the coming year. Include the following schedules:

a. Sales budget in RM.

(3 marks)
b. Production budget in units.
(4 marks)
c. Direct usage and purchase material budget.
(6 marks)
d. Direct labour budget.
(3 marks)
e. Manufacturing overhead budget.
(3 marks)
f. Selling and administrative expense budget.
(3 marks)

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OBJECTIVE: To enable learners to utilize the Cost-Volume-Profit analysis in making informed decisions and
cost-effective moves about the products or services the business sells.

REQUIREMENT : Cost-volume-profit analysis

QUESTION 2 : CLO3

Magic Water Company manufactures water filter for housing use. Owner of Magic Water, Mrs Yusni
believe that an aggressive campaign is needed next year, due to increased competition in local market.
Presented below is the data for year 2019, for use in next year’s advertising campaign.

Cost Schedules
Variable costs
Direct labour per filter RM16.00
Direct materials 8.00
Variable Overhead 6.00
Variable costs per filter RM30.00
Fixed costs
Manufacturing RM50,000
Selling 80,000
Administrative 140,000
Total Fixed Costs RM270,000
Selling price per filter RM50.00
Sales revenue, 2019 (20,000 filters) RM1,000,000

Puan Yusni has set the sales target for the year 2020 at a level of RM1,100,000 (22,000 filters).

Required:

a. What is the break-even point in units for 2019?

(1.5 marks)

b. Puan Yusni believes that to attain the sales target in the year 2020, the company must incur an
additional selling expense of RM20,000 for advertising, with all other costs remaining constant. What
will be the break-even point in dollar sales for 2020 if the company spends the additional RM20,000?
(2 marks)

c. What is the margin of safety for Magic Water if they achieve the sales target in 2020 without
additional selling expense in b) above?
(1 marks)

d. How many units do Magic Water needs to sell in order to achieve a net profit before tax of
RM180,000, assuming all costs remain constant?
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 (2 marks)

e. “Break-even analysis is of limited use to management because a company cannot survive by just
breaking even.” Do you agree? Explain.
(1.5 marks)

[Total: 30 Marks]

TASK 2 (70 MARKS):

OBJECTIVE:

To enable learners to use variance analysis for the purpose of benchmarking when evaluating performance
and to further control organisational output, efficiency and sustainability.

REQUIREMENT:
Standard Costing & Variance Analysis

QUESTION 1: CLO3

Kasia Manufacturing Company has developed the following standards for one of their products:

STANDARD VARIABLE COST CARD

ONE UNIT OF PRODUCT

Direct materials: 20 square meter at RM5 per square foot RM100.00

Direct labour: 8 hours at RM6 per hour 48.00
Variable overhead: 8 hours at RM3 per hour   24.00
   Total standard variable cost per unit RM172.00

The company records materials price variances at the time of purchase.

The following activities occurred during the month of July:

Materials purchased  150,000 square meter at RM5.25 per sq. foot

Materials used   96,000 square meter
Units produced    5,000 units
Direct labour   41,000 hours at RM6.55 per hour
Actual variable overhead RM238,000

Required:

a. Calculate the material price variance and indicate whether it is favourable or unfavourable.
(2.5 marks)

b. Calculate the material usage variance and indicate whether it is favourable or unfavourable.
(2.5 marks)

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c. Calculate the labour rate variance and indicate whether it is favourable or unfavourable.
(2.5 marks)

d. Calculate the labour efficiency variance and indicate whether it is favourable or unfavourable.
(2.5 marks)

e. Calculate the variable overhead spending variance and indicate whether it is favourable or
unfavourable.
(2.5 marks)

f. Calculate the variable overhead efficiency variance and indicate whether it is favourable or
unfavourable.
(2.5 marks)

QUESTION 2: CLO3

OBJECTIVE:

To enable learners to explain what ethical behaviour means to managers and management accountants.

REQUIREMENT

Ethical behaviour for managers and management accountants

Amirul, the purchasing agent for a Selatan Manufacturing Division was considering the possibility of
purchasing a component from a new supplier. The price is RM0.70 which is below the standard price of
RM0.90. The favourable price variance would help Amirul to produce an impressive performance report
which is good enough to qualify him for an annual bonus. More importantly, a good performance this
year would secure him a position at the headquarters with a significant salary increase.

However, there was doubt on his part knowing the background of the new supplier. Reports were
basically negative, indicating that the supplier was known to make two to three delivery on time, but
being unreliable there on. There were also questions regarding the quality of the parts delivered, with life
of the components being 25 percent less than what normal sources would provide.

If the component was purchased, no problems would surface for several months. By then, Amirul would
already be at the headquarters. Considering the minimum personal risk, Amirul continues with the
decision to purchase from the new supplier.

Required:

Do you think that the use of standards and practice of holding individuals accountable for their
achievement played major roles in Amirul’s decisions? Was he being ethical? Discuss.
[7 marks]

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QUESTION 3 : CLO3

OBJECTIVE:

To enable learners to identify the relevant costs and benefits from those that are irrelevant pertaining
decisions / alternatives from which the alternative with the greatest net benefit may be chosen in aiding
decisions-making.

REQUIREMENT:
Short term decision-making

(Part 1)
Sedili Hospital was considering to outsource its food service so that it could focus on its core activities. An
experienced supplier, Rely Food Service (RFS) has been contacted for the possibility of an outsourcing
arrangement.

The hospital's business office has provided the following information for food service for the year just
ended: food costs, RM445,000; labor, RM42,500; variable overhead, RM17,500; allocated fixed overhead,
RM30,000; and cafeteria sales revenue, RM40,000. The following information was provided:

 RFS will charge Sedili Hospital Hospital RM7 per day for each patient served. Note: This figure has been
"marked up" by RFS to reflect the firm's cost of operating the hospital cafeteria.

 Sedili Hospital 250-bed facility operates throughout the year and typically has an average occupancy rate
of 70%.

 Labor is the primary driver for variable overhead. If an outsourcing agreement is reached, hospital labor
costs will drop by 90%. RFS plans to use Sedili Hospital facilities for meal preparation.

 Cafeteria sales revenue is expected to increase by 15% because RFS will offer an improved menu
selection.

Required:

a. What is meant by the term "outsourcing"?

(3 marks)

b. Should Sedili Hospital outsource its food-service operation to RFS?

(10 marks)

c. What factors, other than financial, should Sedili Hospital consider before making the final decision?
(3 marks)

(Part 2)

Aloe Medical Aids Company has 16,000 machine hours available to use to produce either Bandages or
Braces. The cost accounting department developed the following unit information for each of the
products:
Bandages Braces
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Sales price RM114 RM142
Direct materials 38 42
Direct labor 30 28
Variable manufacturing overhead 16 24
Fixed manufacturing overhead 6 12
Machine hours required 0.6 1.2

Management desires to make a decision regarding which product to produce in order to maximise the
company's income.

Required:

Taking into consideration the constraint under which the company operates, prepare a report to show
which product should be produced and sold. Show your calculation.
(10 marks)

QUESTION 4: CLO2

OBJECTIVE

To enable learners to utilise financial ratios for the purpose of evaluating a firm’s financial performance
and financial position as well as in recognising firms facing financial distress and using ratios to make
decisions for improvement.

REQUIREMENT

Financial Statement Analysis

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Refer to the following financial statements of Kantan Sdn. Bhd. for 2019 and 2018:

Kantan Sdn Bhd

Balance Sheets
December 31 (in millions)

2019 2018
Assets
Current assets
Cash RM460 RM444
Acount receivable (net) 1,188 1,190
Inventories 1,132 1,056
Other current assets 247 225
Total current assets 3,027 2,915
Property (net) 3,281 3,128
Other assets 5,593 5,804
Total assets RM11,901 RM11,847

Liabilities and Stockholders’ Equity

Current liabilities RM3,313 RM3,184
Long-term liabilities 6,826 6,509
Stockholders’ equity – common 1,762 2,154
Total liabilities and stockholders’ equity RM11,901 RM11,847

Kantan Sdn Bhd

Income Statements
For the year ended December 31 (in millions)

2019 2018
Net sales RM13,198 RM12,397
Cost of goods sold 7,750 7,108
Gross profit 5,448 5,289
Selling and administrative expenses 3,472 3,299
Income from operations 1,976 1,990
Interest expense 233 248
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 Other (income) expense, net 11 0
Income before income taxes 1,732 1,742
Income tax expense 503 502
Net income 1,229 1,240

Required:

a. Analyze Kantan’s financial statement. Compute the following ratios for 2019:

i. Current ratio (year 2018 – 0.92:1)

(2.5 marks)
ii. Inventory turnover (year 2018 – 7.2 times)
(2.5 marks)

iii. Debt to assets ratio (year 2018 – 82%)

(2.5 marks)

iv. Return on assets (year 2018 – 10.8%)

(2.5 marks)

v. Profit margin (year 2018 – 10.0%)

(2.5 marks)

vi. Return on common stockholders’ equity (year 2018 – 56%)

(2.5 marks)

b. Discuss your findings (2018 values are provided for comparison).

(7 marks)

[Total: 70 Marks]
[GRAND TOTAL: 100 MARKS]

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