(Answered)-TASK 1 Planning for profit and cost control Objective To enable - (2025 Updated Original AI-Free Solution
Question
TASK 1 | Planning for profit and cost control |
Objective | To enable the learner to prepare the budgeted profit statement and undertake cost-volume-profit analysis for decision making. |
Marks allocated | 35 marks |
Anhad Sdn. Bhd. manufactures car alarms, and its trading results for the year ended 31 October 2013 are as follows:
$'000 | $'000 |
Sales (800,000 alarms) | 7,200 |
Costs: | |
Materials: direct, variable | 1,600 |
Labour:? direct, variable | 960 |
Labour:? indirect, fixed | 280 |
Other production overheads: variable | 400 |
Other production overheads: fixed | 640 |
Selling overheads: variable | 480 |
Selling overheads: fixed | 360 |
Distribution overheads: variable | 280 |
Distribution overheads: fixed | 120 |
Administration overheads: fixed | 600 |
(5,720) | |
Net profit for the year | 1,480 |
Anhad is planning next year?s activity and its forecasts for the year ended 31 October 2014 are as follows:
- A reduction in selling price per car alarm to $8 per alarm is expected to increase sales volume by 50%.
- Materials costs per unit will remain unchanged, but 5% quantity discount will be obtained.
- Hourly direct wage rates will increase by 10%, but labour efficiency will be unchanged.
- Variable selling overheads will increase in total in line with the increase in sales revenue.
- Variable production and distribution overheads will increase in line with the 50% increase in sales volume.
- All fixed costs will increase by 25%.
You are required to do the following:
Prepare a budgeted profit statement for the year to 31 October 2014 showing total sales and marginal costs for the year and also contribution and net profit per unit.Calculate the break-even point for the two years and explain why the break-even point has changed.? Comment on the margin of safety in both years.Calculate the sales volume required (using the new selling price) to achieve the same profit in 2014 and in 2013.A director comments that ?with these figures, all we have to do to work out our budgeted profit is to multiply the net profit per unit by the units we want to sell?.? Why is this statement incorrect?Using the net present value method of investment appraisal, critically evaluate the two proposals and make your recommendation to Satnam Berhad.(29 marks)
What other considerations should Satnam Berhad take into account in deciding which Project to pursue?List the relevant cost of internal production and external purchase.(4 marks)
Which alternative is more cost effective and by how much?Now assume that the fixed overhead includes $10,000 of cost that can be avoided if the component is purchased externally.? Which alternative is more cost effective and by how much?(15 marks)