JASPEN Development Sdn Bhd expert in construction of shop lots and shopping malls. The marketing manager identified a RM5,000 million project on development of a new shopping mall in Batu Kawan, Penang. The data related to the new shopping mall project is as follows:

Direct materials required:

(i)     1,000,000 pieces of aluminium bar type G is required to be used in the project. The original cost of aluminium bar type G was RM80 per piece but as the bar has not been required for the last two years, it has been written down to RM25 per piece scrap value. The only foreseeable alternative use is as a substitute for aluminium bar type H (in current use) but this would involve further processing costs of RM15 per piece. The current cost of aluminium bar type H is RM55 per piece.

(ii)  Other materials cost is RM1,210 million.

Site workers required:

Total estimated site worker hours involved in this project is 54million hours. One third of the total labour hours is skilled worker and the rest is semi-skilled worker hours. A worker possessing the necessary skills is currently paid RM30 per hour. A replacement would, however, have to be obtained at a rate of RM24 per hour for the work which would otherwise be done by the skilled workers. The current rate for semi-skilled work is RM11 per hour and additional workers could be appointed for this work.

The other project costs are listed as below:

                                                                  RM’million

Contractors                                                           2,200

Legal Costs                                                              250

Costs payable to local authorities                            100

Required:

(a)     Determine the project net profit. Show all workings clearly.

(11 marks)

(b)   Based on the project contract, the timing expected receipt and payments proportion are listed as below:

Beginning of year

                                          2022                2023                2024                2025                2026

Contract value                   10%                                         20%                 65%                 5%

Direct Materials                30%                 30%                 40%

Site Workers                     25%                 25%                 25%                 25%

Contractors’ Progress        30%                 30%                 20%                 15%                 5%

Legal Cost                        100%

Cost payable to

Local authorities               50%                                                                                         50%

Prepare the Yearly Cash Budget of the project. Show all workings clearly.

Answer rating: 100% (QA)

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