Manufactures car alarms Essay

CostsMaterials direct, variable1,600Labour direct, variable960Labour indirect, fixed280Other production overheads variable400Other production overheads fixed640Selling overheads variable480Selling overheads fixed360Distribution overheads variable280Distribution overheads fixed120Administration overheads fixed600(5,720) dough advantage for the year1,480Anhad is planning next years activity and its forecasts for the year ended 31 October 2014 are as follows 1.A reduction in selling price per car alarm to RM8 per alarm is expected to profit gross sales al-Quran by 50%. 2.Materials costs per unit leave alone remain unchanged, but 5% quantity discount will be obtained. 3.Hourly direct wage rates will increase by 10%, but labour efficiency will be unchanged. 4.Variable selling overheads will increase in total in line with the increase in sales revenue. 5.Variable production and distribution overheads will increase in line with the 50% increase in sales volume. 6.All fixed costs will increase by 25%.You are required to do the followinga)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 gain profit per unit.b)Calculate the break-even point for the two years and explain why thebreak-even point has changed. Comment on the margin of safety in both years.c)Calculate the sales volume required (using the new selling price) to achieve the same profit in 2014 and in 2013.d)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?Satnam Berhad is considering diversifying their business activities and they are currently reviewing two proposals. proposal of marriage A is to launch their own television station whilst Proposal B is a joint venture with Kaboor Limited to launch a satellite that would change the African region to receive adverti sements for both companys products.The available data is followsProposal A TV StationInitial set-up costs RM250 billionAnnual running costs RM100 millionEstimated life of project 5 yearsValue of assets released at the end of the project RM40 million Increased sales as a result of publicise products RM60 million in the first year, growing cumulatively by 50% each year for the following quartette years.Project B SatelliteInitial set-up costs RM700 millionAnnual running costs RM50 millionValue of assets released at the end of the project RM10 million (Note all the above to be shared 50/50 with Kaboor Limited)Estimated life of the project is 6 years.Increased sales for Satnam Berhad as a result of advertising their products in the African continent RM80 million in the first year, growing cumulatively by 20% each year for the following five years. mount for both projects would be at a cost of capital of 6%.Relevant discount factors at 6% p.a. areYear Cumulative10.9430.94320.8901.833 30.8402.67340.7923.46550.7474.21260.7054.917 necessitatea)Using the net present value method of investment appraisal, critically evaluate the two proposals and make your recommendation to Satnam Berhad.b)What other considerations should Satnam Berhad take into account in deciding which Project to pursue?