CORPORATE

FINANCE TEST
(25%)

ANSWER QUESTION 1

State and explain 5 (FIVE) types costs in manufacturing.

5 (FIVE) types costs in manufacturing is:

1. Direct Materials
Direct materials are raw materials which can be physically and directly associated with the
finished product in the manufacturing process. Direct materials are raw materials that are
made into finished products. These are not materials that are used in the production
process. Direct materials are goods that physically become the finished product at the end
of the manufacturing process.
For Example: Flour to produce cake and the Gardenia bakery factory orders raw materials
such as flour, yeast from other raw material suppliers. Gardenia then takes this raw material
and mixes it with other raw materials to turn it into bread. This raw material is a direct
ingredient because it directly contributes to the production of the finished product, namely
bread.

2. Indirect Materials
Indirect materials are materials which do not become part of the finished product for
example cream for cake decoration. Indirect materials are defined as materials used in the
manufacturing process that cannot be traced to individual products or jobs. These
ingredients, even when used as part of the production process, are typically used in small
quantities per product and purchased in bulk.
For Example: Disposable tools, Cleaning tool, Glue and adhesive, Oils and lubricants,
Tape and Fasteners and fittings

3. Direct Labour
The work of employees which can be physically and directly associated with converting
raw materials to finished products is called direct labour. Wages of bakers. are examples of
direct labour. Direct labor refers to the employees and temporary staff who work directly
 on a manufacturer's products. (People working in the production area, but not directly on
the products, are referred to as indirect labor.)
For Example: The direct labor cost includes the wages and fringe benefits of the direct
labor employees and the cost of the temporary staff that are working directly on the
manufacturer's products. A product cost (along with the costs of the direct materials and
manufacturing overhead), An inventoriable cost (along with the costs of the direct materials
and manufacturing overhead), A prime cost (along with direct materials), A conversion cost
(along with manufacturing overhead).

4. Indirect Labour
Work of employees who support the production process; but who are not directly involved
in converting raw materials to a physical product is called indirect labour. Indirect labor
refers to employees who are not directly involved in the production process of finished
goods or services. However, they must support the production and manufacturing
ecosystem, including accountants, human resources, sales, marketing teams, etc. Thus,
indirect labor cost is a part of the overhead cost, comprising indirect material and indirect
expenses.
For Example: Wages for sales person.
Production Supervisor: The production supervisor is only responsible for supervising the
production process and monitoring the laborers directly involved in the production, but
they do not play a role in converting raw material into finished goods.
Cost Accountant: The Cost accountant role is responsible for assigning the cost related to
the production.
Human Resource: The HR department is responsible for recruiting all the employees in the
organization, whether directly or indirectly related to the production.
Sales & Marketing: These are responsible for marketing and selling the finished products
into the market.

5. Manufacturing Overhead (MOH)

Manufacturing Overhead consists of costs that are indirectly associated with the
manufacture of finished product. Manufacturing overhead (also referred to as factory
overhead, factory burden, and manufacturing support costs) refers to indirect factory-
related costs that are incurred when a product is manufactured. Along with costs such as
direct material and direct labor, the cost of manufacturing overhead must be assigned to
each unit produced so that Inventory and Cost of Goods Sold are valued and reported
according to generally accepted accounting principles (GAAP).

Manufacturing overhead includes such things as the electricity used to operate the factory
equipment, depreciation on the factory equipment and building, factory supplies and
factory personnel (other than direct labor). How these costs are assigned to products has an
impact on the measurement of an individual product's profitability.
For Example: Depreciation of Cake Oven. Some other examples can include the rent you
pay on your factory building, supplies that are not directly associated with products and
wages of people who work in the plant but are not directly creating products.
 ANSWER QUESTION 2

ANSWER IN EXCEL (REFER MICROSOFT EXCEL)

In 2021 company purchased direct raw material RM65,000, and direct labor cost RM35,000.
Prepare Cost of goods sold schedule for the company.

xxxx COMPANY
COST OF GOOD SOLD STATEMENT Beginning raw material 55,000
FOR THE YEAR ENDING DECEMBER 2018 Direct labour 35,000
Cost RM RM Ending raw material 43,200
Direct Raw Material: Purchases 65,000
Opening inventory 55,000 Indirect material 45,000
+ Purchases (net) 65,000 Indirect labour 37,800
Raw Material available for use 120,000 Factory utilities 5,000
- Ending Inventory (43,200) Factory insurance
Cost of Raw Material Used : 76,800 Factory depreciation 1,800
+ Direct labour 35,000 Beginning work in process 28,700
Prime cost 111,800 Ending work in process 26,450
Manufacturing overhead Beginning finished goods 6,430
Indirect Material 45,000 Ending finished goods 4,320
Selling and administrative
Indirect labour 37,800 3,200
Expenses
Factory utilities 5,000 Others 700
Others 700
Selling and administrative Expenses 3,200
Factory depreciation 1,800
93,500
Factory cost/manufacturing cost 205,300
+ Work in progress opening inventory 28,700
- Work in progress ending inventory (26,450)
Cost of goods manufactured 207,550
+ Finished goods opening inventory 6,430
Cost of goods available for sale 213,980
- Finished goods closing inventory (4,320)
Cost of goods sold at normal 209,660

ANSWER QUESTION 3
 ANSWER IN EXCEL (REFER MICROSOFT EXCEL)

Using above information prepare following budget:

a) Production budget
b) Direct material Budget
c) Direct labor budget

Q1 Q2 Q3 Q4
Q1 Q2 Q3 Q4 Sales Budget
Sales in units 40,000 48,000 60,000 63,000 Sales in units 40,000 48,000 60,000 63,000
Sales price per unit RM6 x Sales Price 6 6 6 6
Desired ending finished goods inventor 4800 6000 5200 4400 Budgeted sales 240,000 288,000 360,000 378,000
Beginning finished goods inventory 4000 4800 6000 5200
Material required per unit 2 2 2 2 Q1 Q2 Q3 Q4
Desired ending inventory 10800 13040 11280 12000 Production budget
Beginning inventory 16320 Sales Unit 40,000 48,000 60,000 63,000
Cost of Material per unit RM1.10 + Desired ending inventory 4,800 6,000 5,200 4,400
Direct labour hours per unit 0.1 0.1 0.1 0.1 Total needs 44,800 54,000 65,200 67,400
Direct labour rate per hour RM13 RM13 RM13 RM13 - Beginning inventory 4,000 4,800 6,000 5,200
Indirect materials RM0.20 per unit Units to be produced 40,800 49,200 59,200 62,200
Indirect labor RM0.15 per unit
Other RM0.35 per unit Direct material Purcahses Budget
Salaries RM28,000 Units to be produced 40,800 49,200 59,200 62,200
Rent RM22,000 x Materials required per unit 2.00 2.00 2.00 2.00
Depreciation RM16,165 Production needs 81,600 98,400 118,400 124,400
+ Desired ending inventory 10,800 13,040 11,280 12,000
Total needs 92,400 111,440 129,680 136,400
- Beginning inventory 16,320 10,800 13,040 11,280
Total Direct materials 76,080 100,640 116,640 125,120
x Cost of Material per unit 1.10 1.10 1.10 1.10
Direct Material Cost Per Unit 83,688 110,704 128,304 137,632

x Direct labour budget

Units to be produced 40,800 49,200 59,200 62,200
x Direct labour hours per unit 0.10 0.10 0.10 0.10
Total hours needed 4,080 4,920 5,920 6,220
x Direct labour rate per hour RM13 RM13 RM13 RM13
Total direct labour cost 53,040 63,960 76,960 80,860
ANSWER QUESTION 4

ANSWER IN EXCEL (REFER MICROSOFT EXCEL)

a) CET Sdn Bhd is considering one of the two mutually exclusive projects,
GAMUDA and SIME. The company's discount rate is at 10 percent. The
expected after tax cash flows for both projects are as follows:
i&ii)Payback Period & NPV

KULIM DARBY
Payback PV = Cash flow x Payback PV = Cash flow
Years Cash Flow 10% Years Cash Flow 10%
period PVIF period x PVIF
0 (160,000) - 1.0000 0 (155,000) - 1.0000
1 80,000 (80,000) 0.9091 72,727 1 60,000 (60,000) 0.9091 54,545
2 80,000 (160,000) 0.8264 66,116 2 76,000 (136,000) 0.8264 62,810
3 80,000 (240,000) 0.7513 60,105 3 80,000 (216,000) 0.7513 60,105
4 80,000 (320,000) 0.6830 54,641 4 65,000 (281,000) 0.6830 44,396
5 80,000 (400,000) 0.6209 49,674 5 72,000 (353,000) 0.6209 44,706
Total
Total Present
Present
Value
Payback period 2yrs 303,263 Payback period = 2 yrs + 19,000/80,000 2.24YRS Value 266,563
Initial (160,000) Initial (155,000)
Net
Net present
present
Value
143,263 Value 111,563

iii) IRR 266,563

KULIM DARBY
IRR 41.04% IRR 34.75%

iv)
Both project can be accept as it was more than 10% cost of capital, but KULIM was more favourable compare to DARBY due to KULIM had high IRR rather than DARBY. Thus can accept or invest in KULIM Project.