As an external consultant, you have been asked by Board of Directors of company to prepare a written briefing paper for their next Board meeting. N 2MC Sdn Bhd profitability improved over the years. Board of Directors identified potential of expansion opportunities through introduction of new product line. Drawing upon research and current practice, you are asked to cover the following issues:

1). Analyze Nasuha Sdn Bhd budgeted profitability for financial year ending 31 December 2020 using your chosen profitability budgeting by product and services (complete and/or excerpts whichever is relevant)

2). Analyze the cost behavior of direct overhead for financial year ending 31 December 2019.

3). Analyze appraisal on investment for production of new product line. Using time variant or time invariant approach
 

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N²MC Sdn Bhd a social enterprise company incorporated in Malaysia with the mission to advocate resilient infrastructure, promote inclusive and sustainable industrialize and foster innovation (SDG9). N²MC has two main two main outbounds which are building management application or software and LED lightings for building. NEW PRODUCT LINE The company was established since 2010, and will be celebrating its 10th anniversary next year. With that in mind, the board of directors proposed that N²MC to enhance LED lightings by adding non-explosive cover. The new improved LED lights will be known as EX-LED. In order to produce EX-LED, N²MC needs to invest on new molding machine which cost RM50,000 with required rate of return of 15%. The details of the new product line is as follows: Year Initial Cost and Book Value Annual Net After Tax Annual Net Income Cash flows Main Operations Activities 0 1 $ 2 WN 3 4 5 Supporting Activities ՎԴ Դ Դ ՄԴ Դ Դ $ $ Inbound ● • Wire . The financial year end for N²MC is December 31 every year. The company Operational flows is as follows: • Cover • Wire LED Strip Metal Base LED Strip Metal Base · Cover • Resin Injection Moulding 50,000 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 30 days trial 70,000 $ 60,000 $ 50,000 $ Process 40,000 $ 30,000 $ Subscription Training Technical Payment Outbound LED light 30,000 40,000 35,000 Assembling Packaging Quality Check EX-LED light (new product line in 2021) (to be excluded in Master nor operation budget 20) Marketing & Promotion Research & Development Information Technology & Infrastructure 25,000 20,000 support General Administrative, Finance, Human Resource Building Applications/ Software Management Planning & Budget for financial year 2020 For financial year 2020, Sales Department was assigned to achieve budgeted sales of 70,000 units and 30,000 online subscription respectively for EX-LED and Building Management Software. It is also assumed that the selling price, direct material and direct labour cost remains the same as prior period, however overhead has been identified as follows: Depreciation of Computer & Equipments for application* Depreciation of Building* Utilities* (Note A) Maintenance & Upkeep of Production Facility** Maintenance & Upkeep of Applications and Software** Indirect Labour Indirect Material Other staff cost Marketing and promotion Research & Development General administrative expenses Training cost* $300,000 $40,000 $4,500,000 $100,000 $200,000 $504,000 $900,000 $2,000,000 $1,000,000 $2,000,000 $430,000 $1,000,000 *75% of the company s computer & equipment, building, and utilities devoted to production activities, the remaining 25% used for selling and administrative function. ** 100% of the company s maintenance and upkeep of Production Facility and applications & software. Note A- Utilities Ledger and Cost Driver Utilities Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec $214,500 $517,500 $420,500 $345,000 $288,000 $631,000 $424,350 $434,000 $276,000 $325,000 $299,000 $325,150 $4,500,000 No. of machine hours 72,000 110,000 100,000 95,000 81,000 118,000 101,000 105,000 78,000 93,000 81,000 87,000 1,121,000 N²MC Sdn Bhd Accounting Records ending 31 December 2019. N²MC kept their financial records using cloud based accounting system, the following information was extracted. N-MC standard costing is based on the assumption of 1 batch is equal to 5 units. For example, each unit of LED requires 0.3 metre of Wire, hencel batch of LED requires 0.3 metres X 5 LED unit = 1.5metres for 1 batch. The same will apply for all direct material and direct labour. Based on Built of Material Dec 2019 summary. Every unit of LED requires 0.3 metre of Wire, 10 strips of LED strip, 1 pc of Metal Base and 1 pc of Cover. Cost of respective material are $2.00 per metre, $1.00 per strip, $4.00 per pc, and $3.00 per pc. Furthermore, the summary also included hours taken by operators to Assemble, Pack, and Check for Quality which are 1 hour, 6 minutes, and 12 minutes respectively for every 5 units. Each operator hourly rate is $10. Another Service Report Summary consists of information on Building Management Applications/ Software activities, which are trial 10 hours, subscription payment 12 minutes, training 50 hours, technical support 104 hours respectively for 10 subscription. Direct Labour Charge rate per hour for respective activities $20 for trial, $10 for subscription payment, $30 for training, and technical support for $50. Production Head of Department also alerted CEO s office, that, the current facility maximum capacity for LED is 100,000 unit. Furthermore, Services Department also identified the maximum capacity for Software Subscription is only for 50,000 pax per year. Selling price was $30.00 and $2,500 per unit for LED and Building Management Application/ Software respectively. In addition, the following is the allocation of cost pools: LED Production: Injection Molding (unit) Assembling (unit) Packaging (unit) Quality Check (unit) Building Management Apps / Software 30 days trial (subscription) Subscription Payment (subscription) Training (subscription) Technical Support (subscription) 30% 0% 20% 5% 5% 70% 5% 5% 15% 45% N²MC Sdn Bhd a social enterprise company incorporated in Malaysia with the mission to advocate resilient infrastructure, promote inclusive and sustainable industrialize and foster innovation (SDG9). N²MC has two main two main outbounds which are building management application or software and LED lightings for building. NEW PRODUCT LINE The company was established since 2010, and will be celebrating its 10th anniversary next year. With that in mind, the board of directors proposed that N²MC to enhance LED lightings by adding non-explosive cover. The new improved LED lights will be known as EX-LED. In order to produce EX-LED, N²MC needs to invest on new molding machine which cost RM50,000 with required rate of return of 15%. The details of the new product line is as follows: Year Initial Cost and Book Value Annual Net After Tax Annual Net Income Cash flows Main Operations Activities 0 1 $ 2 WN 3 4 5 Supporting Activities ՎԴ Դ Դ ՄԴ Դ Դ $ $ Inbound ● • Wire . The financial year end for N²MC is December 31 every year. The company Operational flows is as follows: • Cover • Wire LED Strip Metal Base LED Strip Metal Base · Cover • Resin Injection Moulding 50,000 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 30 days trial 70,000 $ 60,000 $ 50,000 $ Process 40,000 $ 30,000 $ Subscription Training Technical Payment Outbound LED light 30,000 40,000 35,000 Assembling Packaging Quality Check EX-LED light (new product line in 2021) (to be excluded in Master nor operation budget 20) Marketing & Promotion Research & Development Information Technology & Infrastructure 25,000 20,000 support General Administrative, Finance, Human Resource Building Applications/ Software Management Planning & Budget for financial year 2020 For financial year 2020, Sales Department was assigned to achieve budgeted sales of 70,000 units and 30,000 online subscription respectively for EX-LED and Building Management Software. It is also assumed that the selling price, direct material and direct labour cost remains the same as prior period, however overhead has been identified as follows: Depreciation of Computer & Equipments for application* Depreciation of Building* Utilities* (Note A) Maintenance & Upkeep of Production Facility** Maintenance & Upkeep of Applications and Software** Indirect Labour Indirect Material Other staff cost Marketing and promotion Research & Development General administrative expenses Training cost* $300,000 $40,000 $4,500,000 $100,000 $200,000 $504,000 $900,000 $2,000,000 $1,000,000 $2,000,000 $430,000 $1,000,000 *75% of the company s computer & equipment, building, and utilities devoted to production activities, the remaining 25% used for selling and administrative function. ** 100% of the company s maintenance and upkeep of Production Facility and applications & software. Note A- Utilities Ledger and Cost Driver Utilities Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec $214,500 $517,500 $420,500 $345,000 $288,000 $631,000 $424,350 $434,000 $276,000 $325,000 $299,000 $325,150 $4,500,000 No. of machine hours 72,000 110,000 100,000 95,000 81,000 118,000 101,000 105,000 78,000 93,000 81,000 87,000 1,121,000 N²MC Sdn Bhd Accounting Records ending 31 December 2019. N²MC kept their financial records using cloud based accounting system, the following information was extracted. N-MC standard costing is based on the assumption of 1 batch is equal to 5 units. For example, each unit of LED requires 0.3 metre of Wire, hencel batch of LED requires 0.3 metres X 5 LED unit = 1.5metres for 1 batch. The same will apply for all direct material and direct labour. Based on Built of Material Dec 2019 summary. Every unit of LED requires 0.3 metre of Wire, 10 strips of LED strip, 1 pc of Metal Base and 1 pc of Cover. Cost of respective material are $2.00 per metre, $1.00 per strip, $4.00 per pc, and $3.00 per pc. Furthermore, the summary also included hours taken by operators to Assemble, Pack, and Check for Quality which are 1 hour, 6 minutes, and 12 minutes respectively for every 5 units. Each operator hourly rate is $10. Another Service Report Summary consists of information on Building Management Applications/ Software activities, which are trial 10 hours, subscription payment 12 minutes, training 50 hours, technical support 104 hours respectively for 10 subscription. Direct Labour Charge rate per hour for respective activities $20 for trial, $10 for subscription payment, $30 for training, and technical support for $50. Production Head of Department also alerted CEO s office, that, the current facility maximum capacity for LED is 100,000 unit. Furthermore, Services Department also identified the maximum capacity for Software Subscription is only for 50,000 pax per year. Selling price was $30.00 and $2,500 per unit for LED and Building Management Application/ Software respectively. In addition, the following is the allocation of cost pools: LED Production: Injection Molding (unit) Assembling (unit) Packaging (unit) Quality Check (unit) Building Management Apps / Software 30 days trial (subscription) Subscription Payment (subscription) Training (subscription) Technical Support (subscription) 30% 0% 20% 5% 5% 70% 5% 5% 15% 45%

Answer rating: 100% (QA)

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