Task 1: Managerial Planning and Decisions Plasticware Sdn Bhd manufactures quality plastic wares for refrigerated food

products. The company has experienced steady growth in sales for the past 5 years. However, increased competition has led Mr James, the managing director, to believe that to maintain the companys current growth, they need an aggressive advertising campaign next year. To prepare the next years advertising campaign, the companys management accountant has prepared and presented Mr James with the following data for the current year, Year 1. Cost schedule Variable costs Direct labour Direct materials Variable overhead Total variable costs Fixed costs Manufacturing Selling Administrative Total fixed costs Selling price per pipe Expected sales, Year 1 (20,000 pipes) Tax rate RM 16.00 6.50 5.00 27.50 RM 50,000 80,000 140,000 270,000 RM50 RM1,000,000 40%

Mr James has set the sales target for year 2 at a level of RM 1,100,000 (22,000 units) ANSWER A. Projected after tax operating profit for Year 1? Target Income (Expected sales, year 1) Tax Rate RM1, 000,000 40%

Net projected after tax operating profit (NOPAT) NOPAT = Operating Income x (1 - Tax Rate) = 1,000,000 x (1 0.4) = RM 600,000.00

B. Compute the break-even point and margin of safety in units for Year 1? Breakeven: Number of units required to be sold in order to produce a profit of zero. Total fixed costs Selling price per pipe Total variable costs Breakeven RM 270,000.00 RM 50.00 RM 27.50

= Fixed Cost / (Price per Unit - Variable Unit Cost) = RM 270,000.00 / (RM 50.00 - RM 27.50) = 12,000 Units

Margin of safety (MOS) is the excess of budgeted or actual sales over the break even volume of sales. It stats the amount by which sales can drop before losses begin to be incurred. The higher the margin of safety, the lower the risk of not breaking even. Expected sales, Year 1 (20,000 pipes) Margin of Safety = Total budgeted or actual sales Break even sales = 20,000 12,000 = 8,000 Pipes

C. Mr James believes that to attain the sales target requires an additional selling expense of RM22,500

for advertising in Year 2, with all other costs remaining constant. What will be the after tax operating profit for Year 2 if the firm spends the additional RM22, 500? Advertising (Discretionary fix costs) In two years = RM 22, 000.00 Tax rate = 40% Cost schedule Year 1 Year 2 Total variable costs 27.50 27.50 Total fixed costs 270,000 270,000 Advertising 11000 11000 Selling price per pipe RM50 RM50 Expected sales, 20,000 pipes 22,000 units RM1,000,000 RM 1,100,000 Tax rate 40% 40%

Task 2 Divisional Performance and Ethics Edward the newly appointed Management Accountant of High Tech Sdn Bhd was torn between conflicting emotions. His latest investment project was stressing him at work. His boss Jeff, had asked him to massage the figures on this project- named Mestec. The original investment estimates for the Mestec project was quoted at RM23.4 million. The projected annual income from this project is RM2.805 million. High Tech required a return on investment of at least 15 percent for new project approval. Edward noticed that the Mestec projects rate of return was nowhere near the cut-off rate. He duly reported his concern to his boss. Jeff however encouraged Edward to show increased sales and decreased expenses in order to increase the projected income to RM3.51 million. Edward, concerned over the long term feasibility of the project, called for a meeting with Jeff. The following conversation took place during their meeting:

Edward: Jeff, I have gone through the figures for the Mestec project with the sales department and the production department people. I cant find any way to increase the annual income above RM2.805 million. Jeff: Edward, the figures are mere estimates. Nobody - be it sales or production personnel can accurately tell you the actual amounts. I talked to the sales director and she thinks the sales could range from RM3 million to RM5 million. Just take the higher figure. I have confidence in this project. Edward: But, the sales director felt that the RM5 million sales is very unlikely- only a 5 percent chance that the sales will reach that high! Jeff: As I said before, nobody knows for sure. This is only an estimate. Lets be optimistic and take the higher figure. Edward we really need this project to give our division the chance to qualify for sales based bonuses. Remember, if this project goes through all of us will benefit. Edward: I dont think it is right Jeff. I feel bad signing off a project, that I have very little confidence in. Jeff: Just do it Edward. I will back you up if anything goes wrong. Required: a. What is the return on investment (ROI) of Project Mestec based on the initial estimates? [4 marks] b. What would the ROI be if the income of the project increases to RM3.51million? [4 marks] c. Identify an alternative method of measuring divisional investments and critically discuss the ROI method in with of your chosen alternative method. [8 marks] d. Do you agree that Edward has an ethical dilemma? Explain. Is there any way that Jeff could ethically justify raising the sales estimates and/or lowering expense estimates? [12 marks] e. What do you think Edward should do? Explain. [7 marks] [TOTAL: 35 MARKS]

Task 3 Activity based costing (ABC) and decision model a. ABC systems yield more accurate product costs than conventional systems because they use more cost drivers to assign support costs to products. Discuss this statement. [10 marks] b. Describe the short-term decision making model, and explain how cost behaviour affects the information used to make decisions. [10 marks] [TOTAL: 20 MARKS] (Marks would be allocated on clarity of argument and justification. Professional marks would be allocated for format and structure of presentation).

Task 4: Cash Budgeting and Control The controller of Fast Meals Sdn Bhd provided the following information for the month of March: a. Sales are budgeted to be RM628,000. About 85 percent of sales are cash; the remainder is on account. b. Of the credit sales, 70 percent are collected within the month of sale. 28 percent will be paid in the following month c. Food and supplies purchases, all on account, are expected to be RM464,000. Fast Meals pays 25 percent in the month of purchase and 75 percent in the month following purchase. d. Wages total RM12,000 each month and are paid in the month incurred. e. Utilities average RM3,,200 per month. Rent on building is RM6,400 per month. f. Insurance is paid quarterly, and the payment of RM2,800 is due in March.

g. February sales were RM726,000 and purchases of food and supplies in February equaled RM520,000. h. The cash balance on March 1 is RM8,588. Required: Prepare a cash budget for March. Show all workings. [TOTAL: 20 MARKS] Assignment Format: a. Use double space and 12-point of Times New Roman font. b. Provide references. References should use the American Psychological Association (APA) format c. References should be latest (year 2006 and onwards) Notes: Assignments should be submitted according to the fixed date. Plagiarism is not acceptable. If you are not sure what is meant by plagiarism, refer to the various websites which discuss this matter, e.g. owl.english.purdue.edu/handouts