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FE SS 15/16 - QUESTION 5 [20 marks] Tiramisu & Butter Sdn. Bhd. is considering an expansion of its product line. The proposed expansion plan would require the acquisition of a new plant and equipment costing RM700,000. The plant and equipment has an estimated useful life of 3 years and is expected to be sold at RM100,000 at the end of year 3. It is eligible for a 10% initial capital allowance and 15% annual capital allowance on a straight line basis. Tiramisu & Butter Sdn. Bhd. depreciates the plant and equipment on a straight-line basis in its books of accounts. The company estimated that the units produced and sold are as follows: Year 1 2 3 Units produced and sold 90,000 95,000 100,000 The selling price per unit is expected to increase by 5% each year and variable cost to increase by 3% per year. The costs and revenue information relating to the new product in year 1 are given below: RM Selling price per unit 16.00 Variable cost per unit 8.00 Additional fixed costs 280,000 Additional fixed costs include the depreciation on the new plant and equipment. The company cost of capital is 12%. Tiramisu & Butter Sdn. Bhd. is subject to 28% tax rate and taxes are paid one year in arrears. The company normally uses payback period calculation to screen its projects and would reject new investment with a payback period of more than 2 years. Required: (a) Calculate the net present value of the proposed investment. [12 marks] (b) Calculate the payback period of the project. [2 marks] (c) Recommend whether the project is worthwhile based on your calculations in (a) and (b) above. Provide justification for your answer. [2 marks] (d) Explain TWO (2) advantages and TWO (2) disadvantages of payback period. [4 marks] FE S2 15/16 - QUESTION 2 [20 marks] Positive Sdn. Bhd. (PSB) produces and sells a product called Hoya. The production process involves heating and compressing material A and B into sheets. The following standard costs for 1 kg of Hoya were developed: Standard Cost Sheet for Hoya Direct material: A: 2kgs x RM10 per kg B: 1 kg x RM15 per kg Direct labour (3 hours ) Variable overhead (3 hours) Total standard variable cost Standard contribution margin Standard selling price RM 20.00 15.00 27.00 6.00 68.00 20.00 88.00 PSB produces 10,000 units of Hoya in the month of July. The total annual fixed overhead budgeted is RM1,440,000. The following information is available regarding the company's operations for the period. RM RM Sales (9,000 units of Hoya at RM90 per unit) 810,000 Direct material: A: 19,000 kg 209,000 B: 10,000 kg 140,000 Direct labour (28,500 hours) 273,600 Variable overhead 52,000 674,600 Contribution 135,400 Fixed overheads 116,000 Profit 19,400 Required: (a) (b) Calculate the following variances: (i) total material mix variance. [4 marks] (ii) total material yield variance. [4 marks] (iii) labour rate and efficiency variance. [3 marks] Based on variances calculated in (a) (iii), state and explain to the management the reason which variance will be most affected by industrial unrest and low morale. [2 marks] (c) Describe TWO (2) advantages of standard costing system might bring to a company and explain the purpose of variance analysis. [3 marks] (d) Explain THREE (3) types of standards under standard costing and identify which types of standards are usually adopted. [4 marks] FE S2 15/16 - QUESTION 4 [20 marks] Al-Ehh & Sons Sdn. Bhd. manufactures range of sport shoes for local and international market. Due to a new national policy, the company finds that wage rates for skilled workers are to increase by 50% over the budget figures. There is a shortage of such skilled workers and it takes over a year to train new recruits adequately. As the management accountant, the managing director has asked you for advice as to which order of priority on the product range would give best use of the skilled labour resources available. There is no change in the cost of unskilled labour of which there is no shortage. The original budget figures for the next period before allowing for the increase in labour cost detailed as follows: Product Maximum production in units Selling price per unit (RM) Variable cost per unit (RM) Material Skilled labour at RM8 per hour Unskilled labour at RM4 per hour Nikey 10,000 32 Miduno 9,000 30 Axxic 11,000 36 6 8 4 10 8 4 8 12 2 Variable overheads are recovered at the rate of RM2 per skilled labour hour. The skilled labour hours available amounts to 30,000 hours in the period. There are fixed costs of RM55,500. Required: (a) (b) Demonstrate the best production mix which will maximize profitability for Al-Ehh & Sons Sdn. Bhd. [13 marks] Calculate the total profit from the proposed production mix as in (a). [2 marks] (c) Indicate TWO (2) factors to be considered in pricing decision and ONE (1) example for each factor. [2 marks] (d) Define each of the following costs and explain whether it is relevant or irrelevant for decision making: (i) Opportunity cost. (ii) Committed cost. (iii) Sunk cost. [3 marks] FE S2 15/16 - QUESTION 5 [20 marks] Tween Development (TD) is considering whether to purchase a building close to Kuantan airport. The building will be used to provide 500 car parking spaces. The cost of building is RM750,000 but further expenditure of RM250,000 will be required to develop the building including to provide access roads and suitable surfacing for car parking and also proper security system. TD is planning to operate the car park for three years. The building will be sold for RM200,000 at the end of Year 3. A consultant has prepared a report detailing projected revenues and costs as follows: Revenues (RM) Repair and maintenance (RM) Other operating costs (RM) Year 1 750,000 175,000 155,000 Year 2 770,000 200,000 170,000 Year 3 850,000 230,000 250,000 The building will qualify for an annual allowance of 25% per year on straight line basis. TD is subject to 25% tax rate and tax is payable in the same year it is incurred. The company's cost of capital is estimated to be 15% per year. It is assumed that the initial capital investment will be incurred at the beginning of the first year and all other receipts and payments will occur at the end of each year. Required: (a) Compute the capital allowance qualified for the building in each of the three years. [3 marks] (b) Prepare a three-year statement which includes the taxable profit and tax payable for each year. (Show all relevant workings.) [10 marks] (c) Calculate the net present value (NPV) for the proposed project. [4 marks] (d) Explain THREE (3) factors that need to be incorporated in order to maximise shareholder value. [3 marks] FE S1 15/16 - QUESTION 1 [20 marks] Tofel Kitchenware Sdn. Bhd. (TKSB) produces kitchenware products. One of the company's popular product is 'cake plate with acrylic dome', which uses acrylic materials instead of propylene plastics. To help ensure cost efficiency, a standard costing system was installed in the company. The following standards have been established for the product's variable inputs: Standard quantity/hours Standard price or rate Standard cost Direct materials 3 kgs RM2.00 per kg RM6.00 Direct labor 0.8 hours RM6.00 per hour RM4.80 Variable overhead 0.4 machine hours RM3.00 per hour RM1.20 During June, the company incurred the following costs: 1. Production of cake plate with acrylic dome totaled 15,000 units. 2. Purchased 58,000 kilograms at a total cost of RM113,100 and consumed 49,500 kilograms of materials in production. 3. The company used 12,200 direct labor hours at a total cost of RM85,400. 4. Actual variable overhead cost totaled RM18,290 for the month. A total 5,900 machine hours was recorded. Required: (a) Calculate the following variances and indicate whether each variance is favorable or unfavorable. (i) Price and quantity variances for material. [3 marks] (ii) Rate and efficiency variances for labor. [3 marks] (iii) Expenditure and efficiency variances for variable overhead. [3 marks] (b) Identify the TWO (2) most significant variances calculated in (a) above. Explain THREE (3) possible causes of these variances. [5 marks] (c) Distinguish between ideal and practical standard. [4 marks] (d) If employees are chronically unable to meet a standard, explain the effect on their productivity. [2 marks] FE S1 15/16 - QUESTION 3 [20 marks] Abirarcorpal Sdn. Bhd. (ASB) manufactures household and kitchenware products from various consumer segments. ASB is considering introducing a new innovative product called Weelie Bin. The proposed plan would require acquisition of special equipment at RM104,500. The special equipment has an estimated useful life of three years and RM16,500 residual value at the end of year three. The equipment will qualify for an annual allowance of 25 percent per year on reducing balance basis. The production manager, 'Adawiyyah has prepared the costs and revenue information for this proposed project: Year 1 2 3 Sales (RM) 64,570 83,050 88,715 Direct materials (RM) 11,400 12,100 13,640 Direct labour (RM) 2,310 3,300 5,390 Direct overheads (RM) 275 460 605 ASB is subject to 25% tax rate and tax is payable one year in arrears. The company's cost of capital is estimated to be 15% per year. It is assumed that the initial capital investment will be incurred at the beginning of the first year and all other receipts and payments will occur at the end of each year. Required: (a) Compute the capital allowance qualified for the special equipment in each of the three years. [2 marks] (b) Prepare a three-year statement which includes the taxable profit and tax payable for each year. (Show all relevant workings.) [10 marks] (c) Calculate the net present value (NPV) for the proposed project. [4 marks] (d) Explain the difference between the following capital budgeting projects: (i) Replacement decision (ii) Mutually exclusive project (iii) Expansion decision [4 marks] FE S1 15/16 - QUESTION 4 [20 marks] AsSafiyya Sdn. Bhd. manufactures range of drinks for local and international market. The company manufactures intensively carbonated drinks which are so popular among customers such as Raspberry Barbosa, Malt Miley, and Diet Coke. The following unit cost information is available for four types of carbonated drinks manufactured by AsSafiyya Sdn. Bhd for the year ended 31 December 2014: Raspberry Barbosa RM 25 Malt Miley RM 22 Diet Coke RM 20 4 1 0.5 1 6.5 3 1 0.5 1 5.5 Raspberry Barbosa 30 150 Malt Miley 33 100 Diet Coke 48 100 4,500 3,300 4,800 Selling price per unit Variable costs per unit: Direct material 7 Direct labor 2 Administrative cost 1 Fixed manufacturing cost 3 Total Unit Costs 13 The company estimates production activities as follows: Batch of production (units) Machine hours required per batch (hours) Estimated demand (units) The total machine hour capacity available is only 30,000 machine hours. Required: (e) Recommend the best production mix which will maximize profitability for AsSafiyya Sdn. Bhd. [12 marks] (f) Calculate the total contribution margin from the proposed production mix as in (a). [3 marks] (g) Describe FIVE (5) purposes of relevant costing. [5 marks]