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ACTIVITIES

Prepared by: Gerald Peries

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ACTIVITY 1 – FINANCIAL STATEMENT ANALYSIS

Please refer to the financial statements of Scientex Berhad on pages 3 - 5.

You are required to perform Task 1 & 2

TASK 1
Calculate the following ratios for 2018 & 2017:-
A) Net operating profit margin
B) Gross profit margin
C) Cost of sales/Sales x 100
D) Operating expenses/Sales x 100
E) Return on assets
F) Total asset turnover
G) Current ratio
H) Cash flow ratio
I) Receivable collection period
J) Debt ratio
K) Debt coverage ratio
L) Age of inventories (use year end figures)
TASK 2
Make a short presentation of your findings on the financial situation of the
company in regards to the following areas:-
A) Profitability
B) Control of costs
C) Liquidity & cash flow
D) Management of receivables & inventories
E) Gearing

Please use the formula sheet on page 6 to assist you.

Prepared by: Gerald Peries

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Scientex Bhd.
(Incorporated in Malaysia)
STATEMENT OF FINANCIAL POSITION OR
BALANCE SHEET AS AT 31 ST July 2018

2018 2017
RM' 000 RM, 000
NON-CURRENT ASSETS
Property, Plant and Equipment 1,150,608 1,012,570
Investment properties 17,000 17,000
Land held for property development 843,946 500,233
Investment in joint venture 27,173 24,115
Investment joint associates 34,463 31,180

Other investments 7,508 8,552

Deferred tax assets 28,920 18,925
Goodwill 59,030 12,134
2,168,648 1,624,709

CURRENT ASSETS
Property development cost 232,957 165,068
Inventories 263,561 168,778
Trade receivables 482,688 385,103
Other receivables, deposits & prepayments 42,224 41,342

Tax recoverable 1,687 891

Cash & cash equivalents 172,316 191,898
1,195,433 953,080

TOTAL ASSETS 3,364,081 2,577,789

Prepared by: Gerald Peries

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EQUITY 2018 2017

Share capital 453,850 411,843
Reserves 1,309,743 1,123,621
Equity attributable to owners of the Company 1,763,593 1,535,464
Non-controlling interest 69,973 68,416
TOTAL EQUITY 1,833,566 1,603,880

LIABILITIES

NON-CURRENT LIABILITIES
Borrowings 323,941 166,500
Retirement benefits obligations 31,116 27,803
Deferred tax liabilities 50,638 35,943
405,695 230,246
CURRENT LIABILITIES
Borrowings 610,370 301,190
Trade payables 380,734 315,900
Other payables & accrued expenses 109,939 103,549
Tax liabilities 23,777 23,024
1,124,820 743,663

TOTAL LIABILITIES 1,530,515 973,909

TOTAL EQUITY & LIABILITIES 3,364,081 2,577,789

Prepared by: Gerald Peries

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INCOME STATEMENT FOR THE YEAR ENDED 31 ST JULY 2018

2018 2017
RM' 000 RM' 000
Revenue (assume all on credit) 2,626,767 2,403,151

Cost of sales (2,108,516) (1,909,999)

Gross Profit 518,251 493,152

Add Other Income 13,363 6,769

Less: Admin. expenses (98,904) (100,622)

Selling & distribution expenses (68,350) (74,230)

Operating profit 364,360 325,069

Share of results of associates & joint ventures 8,049 6,929

Finance cost (10,751) (14,030)

Profit before tax 361,658 317,968

Income tax expense (67,624) (58,027)

Profit for the year 294,034 259,941

Net cash flow from operating

activities 392,424 322,841

Prepared by: Gerald Peries

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RATIO FORMULA SHEET

Net Ope. Profit Margin = Operating profit x 100

Sales Revenue

Gross profit margin = Gross profit x 100

Sales Revenue

Return on assets = Operating profit x 100

Total assets

Total Asset = Sales

Turnover Total Assets

Current ratio = Current Assets

Current Liabilities

Cash flow ratio = Net cash flow from operating activities

Current liabilities

Rec. collection period = Trade Receivables x 365

Credit Sales revenue

Debt Ratio = Total Liabilities

Total Assets

Debt coverage ratio = Non-current Liabilities

Net cash flow from operating activities

Avg. age of inventories = Ending inventories x 365

Cost of sales

Prepared by: Gerald Peries

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ACTIVITY 2

Lotus Heating & Coating Sdn Bhd installs and services commercial cooling systems.
Lotus uses job costing to calculate the cost of its jobs. Overhead is allocated to each job
based on the number of direct labour hours spent on that job. At the end of the current year,
Lotus estimates that its total overhead for the coming year would be $648,000. It also
forecasts using a total of 40,500 direct labour hours for the coming year.
Lotus is currently being requested to quote for two jobs that will begin next year, details
are as follows:

JOB 101 JOB 102

Estimated direct materials $160,000 $135,000
Estimated direct hours 1,750 hours 820 hours

The direct labour rate per hour will be $20 for all jobs.
REQUIRED:
A. What is Lotus’s predetermined overhead rate based on direct labour hours?
B. Calculate the total overheads to be allocated to each of the two jobs.
C. What is the total cost of each job?
D. The company’s normal practice is to add a mark-up of 20% to total job cost to cover
selling and administration expenses and also profit.
Determine the price to be quoted to the customer.

Prepared by: Gerald Peries

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ACTIVITY 3

Golden Industries is currently undertaking 2 projects. The following data outlines

the budgeted data for the two projects for next month:-

PROJECT 1 PROJECT 2

Expected output (units) 600 800

Direct labour hours per unit 10 5
Direct labour rate per hour RM10.00 RM12.00
Machine hours per unit 2 1
Materials per unit 30 kilos 40 kilos
Material cost per kilo RM100.00. RM120.00
Allocated overhead cost per unit RM 200 RM 250
Selling price per unit RM 4500 RM 6300

Shared monthly budgeted overhead cost: RM 360,000

==========

REQUIRED:-

Calculate the cost and the profit per unit and in total using full costing,
absorbing shared overhead costs on the basis of direct labour hours.

Please use the table on the next page to assist you.

Prepared by: Gerald Peries

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ACTIVITY 3 SOLUTION

OAR =

= per labour hour

PROJECT 1 PROJECT 2
Direct Material per unit

Direct Labour per unit

Allocated overhead per

unit

Apportioned Overhead

Total production cost

Profit per unit

Selling price per unit

Prepared by: Gerald Peries

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ACTIVITY 4
Karamjit & Partners is a large law firm that has 10 partners and 12 support staff. The
firm employs a job-order costing system to accumulate costs chargeable to each client,
and it is organised into two departments –the Research & Documents Department and
the Litigation Department. The firm uses predetermined overhead rates to charge the
costs of these departments to its clients. At the beginning of the year, the firm’s
management made the following estimates for the year:-

DEPARTMENT
RESEARCH &
DOCUMENTS LITIGATION

Research-hours………………. 24,000 -
Direct lawyer hours…………. 9,000 18,000
Legal forms and supplies ……. $ 16,000 $ 5,000
Direct lawyer cost ………….. $450,000 $900,000
Departmental overhead cost…. $840,000 $360,000

The pre-determined overhead rate in the Research & Documents Department is based on
research-hours, and the rate in the Litigation Department is based on direct lawyer cost.

The costs charged to each client are made up of three elements; legal forms and supplies
used, direct lawyer costs incurred, and an applied amount of overhead from each
department in which work is performed on the case.
Case 5380 was started on April 10 and completed on May 30. During this period, the
following costs and time were recorded on the case:-

Prepared by: Gerald Peries

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DEPARTMENT
RESEARCH &
DOCUMENTS LITIGATION

Research-hours 26 -
Direct lawyer hours 7 114
Legal forms and supplies $800 $ 400
Direct lawyers cost $350 $5,700

REQUIRED:-

A. Calculate the predetermined overhead rate used during the year in the Research &
Documents Department & the rate used in the Litigation Department.

B. Using the rates you computed in A. above, calculate the total overhead cost
applied to case 5380.

C. What would be the total cost charged to Case 5380? Show calculations by
department and in total for the case.

D. The firm’s normal practice is to use a mark-up of 40% on total cost. Calculate the
amount that would be charged to the client for job 5380.

Prepared by: Gerald Peries

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SOLUTIONS ACTIVITY 4

Part A Research & Documents Litigation

OAR

$ Per research hour % of direct lawyer cost

Part B Case 5380

Total O.H. cost $ x 26 research hours % X $5,700 Total

= =

Part C
Total
Legal Forms $ supplies

Direct lawyers cost

Overheads
Total Cost

Part D
Price (1.40 X Total cost)

Prepared by: Gerald Peries

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ACTVITY 5

The Managers of Maju Bhd. are alarmed by their operating losses. They are considering
dropping service Y as it is showing an operating loss. The Company’s accountant has prepared
the following analysis to help make this decision.

Total Service X Service Y

Sales revenue $450,000 $300,000 $150,000
Less variable expenses 260,000 150,000 110,000
Contribution margin 190,000 150,000 40,000
Less fixed expenses:
Overheads 120,000 70,000 50,000
Marketing and administrative 75,000 55,000 20,000
Total fixed expenses 195,000 125,000 70,000
Operating profit (loss) ($5,000) $25,000 ($30,000)

Total fixed costs will not change if the company stops providing service Y.

REQUIRED:

(a) Prepare the necessary calculations to show whether Maju should drop service Y. Will
dropping Y add $30,000 to operating profit? Explain.

(b) Assume that Maju can avoid $30,000 of fixed expenses by dropping service Y (these
costs are direct fixed costs of service Y). Prepare the necessary calculations to show
whether Maju should drop service Y.

(c) Now, assume that all $70,000 of fixed costs assigned to service Y are direct fixed costs
and can be avoided if the company stops providing service Y. However, marketing has
concluded that service X sales would be adversely affected by discontinuing service Y
(customers want to buy both from the same supplier). Service X’s sales would decline by
15%. Should service Y be dropped?

Prepared by: Gerald Peries

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ACTIVITY 6
You are the GM at Maxim Bhd., a company listed on the main board of the local stock exchange. It
commenced business in 1995 in Penang, Malaysia as a small family owned concern. In 2005, due to its
rapid growth it applied and successfully obtained a listing on the main board of the local stock exchange.
Today the company is a major producer of car components. You are currently evaluating the situation at
one of the company’s factory in Ipoh which produces oil filters which is currently having cash flow
problems.
The relevant details are as follows:
The forecasted income statement for the factory for the next quarter is as follows:
Forecasted Income statement for the next Quarter
Sales revenue (200 000 units) $2 000 000
Cost of sales 1 200 000
Gross profit 800 000
Operating costs
Marketing and distribution $460 000
Administration 440 000 900 000
Profit (loss) $(100 000)
Cost behaviour seems to follow the following pattern:
All of the cost of sales is considered variable.
50% of the total marketing and distribution costs are variable.
And 40% of the total administration costs are variable.
Required:
a. Calculate the number of units that needed to be sold in the next quarter to break even.
(Please round up the variable cost per unit to the nearest whole number)
b. The factory manager at the Ipoh factory has developed a number of alternative plans to get the
entity back into profitability. One of the plans relates to switching to a more reliable supplier of
raw materials, which will increase the cost of sales per unit by $0.80. A change in marketing
strategy will see variable marketing and distribution increase by $0.10, and fixed marketing and
distribution decrease by $60 000. Competitive forces would allow an increase in selling price of
only $0.50 per unit.
On the information available and based on break-even point and profit, would you approve this
plan?
Amount Variable cost Fixed Cost
Cost of sales
Marketing & Distribution
Administration
Total
VC/unit

Prepared by: Gerald Peries

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ACTIVITY 7

The budget committee of Clipboard Office Supply has assembled the following
data.

As the business manager, you must prepare relevant budgets for May and June
this year.

A) Sales in April were $50,000. Your forecast for sales is as follows:

May $51,000, June $52,000 and July $65,000.

B) Clipboard maintains inventory of $9,000 plus 25% of the sales revenue

budgeted for the following month.
Monthly purchases average 50% of sales revenue in the same month.
Actual inventory in April 30 is $13,000.

C) Monthly salaries amount to $3,000. Sales commissions equal 4% of

sales for that month. You can combine salaries and commissions into a
single figure.

D) Other monthly expenses are as follows:

Rent expense $2,600, paid as incurred

Depreciation expense $300
Insurance expense $200 and it has been paid until December this
year

Clipboard Office Supply’s sales are 75% cash and 25% credit.
Credit sales are collected in the month after sale.
Inventory purchases are paid 25% in the month of purchase and 75% the following
month. Salaries and sales commissions are also paid half in the month earned and
half the next month. Income tax of $5,000 is paid every two months and the next
payment will be in June.

Prepared by: Gerald Peries

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The April 30, balance sheet showed the following balances:

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,000
Accounts payable for inventory. . . . . . . . . . . $ 53,000
Salaries and commissions payable/owing….. $ 2,500

REQUIRED: -

A) Prepare Clipboard Office Supply’s cost of sales budget and the budgeted income
statements for May and June.

B) Prepare schedules of (a) budgeted cash collections from customers, (b)

budgeted cash payments for purchases, and (c) budgeted cash payments for
operating expenses.

C) Prepare the cash budget for May & June.

Please use the tables on the next two pages to assist you.

Prepared by: Gerald Peries

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ACTIVITY 7 SOLUTION
April May June July
Sales

Budgeted Cost of sales

May June
Beginning Inventory
+Purchases
Cost of goods available for sale
-Ending Inventory
=Cost of sales

Budgeted Income Statement

May June
Sales
Less cost of sales
Gross Profit
Less Expenses
Rent
Depreciation
Insurance
Salaries & commission
Operating Income

Budgeted Cash Collection from Customers

May June
Cash Sales
Collection of last month's credit sales
Total Collection

Prepared by: Gerald Peries

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Budgeted Payment for Purchases

May June
Last month's Purchase
(For May given in the Balance Sheet)
This month's purchase
Payment for purchases

Budgeted Payment for Operating Expenses

May June
Salaries & commission
-Last month (For May in the B. Sheet)
-This Month
Rent
Payment for operating expenses

Cash Budget
May June
Inflows:
Collection
Total inflows

Outflows:
Payment for purchases
Operating expenses
Tax
Total Outflows
Excess/(deficit) bef. ope. balance
Opening balance ( For May in the B. Sheet)
Ending balance

Prepared by: Gerald Peries

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ACTIVITY 8
The following Fixed Budget was prepared for a project for August this year for
KMM Bhd.:-

Fixed Budget

Actual Budget Variance

Sales (units) 1,950 1,750

Variable cost
Direct materials $310,000 $288,750 $21,250 A
Direct labour $35,750 $32,375 $3,375 A
Utilities $4,000 $3,675 $325 A
Total variable cost $349,750 $324,800 $24,950 A

Fixed cost
Indirect labour $12,000 $10,000 $2,000 A
Equipment
depreciation $12,500 $12,500 $- A
Rent $15,000 $15,000 $-
Total fixed cost $39,500 $37,500 $2,000 A

Total $26,950 A

REQUIRED:-
A. Prepare a new performance report for August using the flexible budget approach.

B. Do you think any of the variances in the report you prepared should be investigated?
Why?

Prepared by: Gerald Peries

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ACTIVITY 9

MK Sdn Bhd., which produces a single product, has prepared the following standard
cost sheet for one unit of the product:-

Direct materials (8kgs at $2.50 per kg) : $20.00

Direct labour (3 hours at $12.00 per hour) : $36.00

During the month of April, the company manufactures 245 units and incurs the
following actual costs:-

Direct materials (1,900kgs) : $4,940

Direct labour (700 hours) : $8,120

REQUIRED :-

Compute the total, price, and quantity variances for materials and labour.

Prepared by: Gerald Peries

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ACTIVITY 10

John Wong, Chief Administrator for Mont Kiara Hospital, is concerned about costs for
tests in the hospital’s lab. Charges for lab tests are consistently higher at the hospital than
at other hospitals and have resulted in many complaints. Also, because of strict regulations
on amounts reimbursed for lab tests, payments received from insurance companies and
governmental units have not been high enough to provide an acceptable level of profit for
the lab.

Mr Wong has asked you to evaluate costs in the hospital’s lab for the past month. The
following information is available:-

A. Basically, two types of tests are performed in the lab – blood tests and smears.
During the past month, 1,800 blood tests and 2,400 smears were performed in the
lab.

B. Small glass plates are used in both types of tests. During the past month, the
hospital purchased 12,000 plates at a cost of RM28,200. Some 1,500 of these plates
were still on hand & unused at the end of the month; there were no plates on hand at
the beginning of the month.

C. During the past month, 1,150 hours of labour time were recorded in the lab. The
cost of this labour time was RM13,800.

Prepared by: Gerald Peries

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Mont Kiara Hospital has never used standard costs. By searching industry literature,
however, you have determined the following nationwide averages for hospital labs:-

PLATES : Two plates are required per lab test. These plates cost
RM2.50 each and are disposed of after the test is
completed.

LABOUR : Each blood test should require 0.3 hours to complete,

and each smear should require 0.15 hours to complete. The average cost
of this lab time is RM14 per hour.

Mr Wong would like a complete analysis of the cost of plates and labour in the lab for the
last month so that he can get to the root of the lab’s cost problem.

REQUIRED:-

A. Compute a materials price variance for the plates purchased last month and a
materials quantity variance for the plates used last month.

B. For labour cost in the lab, compute a labour rate variance and a labour efficiency
variance

C. Interpret the results in parts A & B and advice Mr. Wong on the results.

Prepared by: Gerald Peries

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ACTIVITY 11

Bina Teguh Sdn Bhd located in Kuala Lumpur. The company is currently evaluating

a project.

The project will require an initial investment of RM25 million and the project will have

a four year life. Straight line depreciation applies with zero salvage value for tax

purposes. The project will require an additional investment in working capital of RM 1

million at the start of the project and this will be recovered at the end of the project.

Estimates of revenues and costs arising from the new project appear below:-

(in millions of RM)

YEAR 1 YEAR 2 YEAR 3 YEAR 4
Sales Revenue 22 25 26 18
Direct materials
(20% of revenue)
Direct labour
(25% of revenue)
Cash Fixed Overheads 2 2 2 2
Variable overheads
(5% of revenue)

The tax rate is 25% and its cost of capital is 10%.

The Board of Directors has laid down the following criteria for all project selection:-

A. Any project to be undertaken must yield a positive Net Present Value when
discounted at the company’s cost of capital.

B. Any project to be undertaken must give a Payback of less than 4 years.

C. Any project to be undertaken must give a Profitability index of more than 1.

D. The IRR must be more than the cost of capital.

Prepared by: Gerald Peries
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REQUIRED:

The board of directors of the company has just appointed you as their consultant for
evaluating the viability of this project.

You are required to perform the necessary calculations and make a presentation to the
board on the viability of the project together with reasons for your choice.

Please use the tables on the next page to assist you.

Prepared by: Gerald Peries

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SOLUTIONS ACTIVITY 11
(in millions of RM)

YEAR 0 1 2 3 4
Revenue
Less:
Direct materials (20%)
Direct Labour (25%)
Cash Fixed Overheads
Variable Overheads (5%)
Depreciation
Taxable profit
Tax Payment (25%)
Profit after tax
Add back depreciation
Cash surplus

Cash flow summary

Initial capital outlay
Working Capital
Recovery of W. Capital
Cash surplus
Net cash flow
x PV factor (10%) 1 0.91 0.83 0.75 0.68
PRESENT VALUE (26)

Payback

NPV

Profitability index = (NPV + Initial investment) / Initial investment

Is the IRR more than the cost of capital?

Accept/reject

Prepared by: Gerald Peries