1. Sharks Ltd operates in the entertainment industry and one of its activities is to promote entertainment events throughout East Malaysia. The company is examining the viability of a fund-raising concert in Sabah. Estimated fixed costs are RM180,000. These include the fees paid to performers, the hire of the venue and advertising costs. Variable costs consist of the cost of a pre-packed buffet which will be provided by a firm of caterers at a price, which is currently being negotiated, but it is likely to be in the region of RM10 per ticket sold. The proposed price for the sale of a ticket is RM30. The management of Sharks Ltd has requested the following information: -

a. The number of tickets that must be sold to breakeven.?

b. How many tickets must be sold to earn RM60,000 target profit?

c.What profit would result if 10,000 tickets were sold?

d. What selling price would have to be charged to give a profit of RM60,000 on sales of 10,000 tickets, fixed costs of RM180,000 and variable costs of RM10 per ticket?

e. What is the profit-volume ratio?

f.With reference to part (a), what is the margin of safety given expected sales of 10,000 tickets?

g. Discuss ONE (1)advantage of managers possessing knowledge of the cost-volume-profit analysis.

2. Wee Ltd, produces a single product in one of its factory. For control and measurement purposes, a standard costing system was recently introduced and is now in operation.

The standards set for the month of July were as follows:

Production and sales 16,000 units

Selling price (per unit) RM140

Materials:

Material XX 6 kgs per unit at RM12.25 per kilogramme

Material YY 3 kgs per unit at RM3.20 per kilogramme

Manpower 4.5 hours per unit at RM8.40 per hour

Fixed overheads are at RM86,400 per month.

The actual data for the month of July are as follows:

- Produced 15,400 units, which were sold at RM138.25 each.

- Materials :Used 98,560 kgs of material XX at a total cost of RM1,256,640.

:Used 42,350 kgs of material YY at a total cost of RM132,979.

- Labour :Paid an actual rate of RM8.65 per hour to the labour force. The total amount paid out amounted to RM612,766.

- Fixed overheads costs RM96,840.

Required:

(a) Calculate the actual and budgeted profits for the month of July based on the marginal costing system.

(b) Calculate the following variances: -

Material price and usage variances;

Labour rate and efficiency variances;

Fixed overhead expenditure variance; and

Sales margin price and volume variances.

(c) Prepare a statement reconciling the actual with the budgeted profit or loss figure based on your answers in (b) above.

(d) Referring to part (b), how would you explain the possible reasons for the variances?

3. BeBright Co., a wholesaler, sells its products to retailers throughout Kuala Lumpur. The company has adopted a regional structure with each region consisting of 2 sales territories. Each region has its own regional office and a warehouse which distributes the goods directly to the customer. Each sales territory also has an office where the sales and marketing staffs are located. In the Cheras region as well there are 2 sales territories with offices located in Connaught Gardens and Midah Gardens. The budgeted results for the next 3 months are as follows: -

Connaught Midah Total (RM000s) (RM000s) (RM000s) Cost of goods sold 1,600 1,000 2,600

Marketing / salespersons salaries 300 240 540

Sales office rent 150 120 270

Depreciation of sales office equipment 50 40 90

Allocation of warehouse rent 48 24 72

Depreciation of warehouse equipment 38 22 60

Regional &headquarters costs: Avoidable costs 272 186 458

Unavoidable costs 760 340 1,100 Total costs assigned to each location 3,218 1,972 5,190

Reported profit / (loss) 382 (272) 110 Sales 3,600 1,700 5,300

The company is evaluating whether it should discontinue Midah Gardens sales office as it is not profitable. Assuming that the above results are likely to be typical of future quarterly performance, should the company discontinue this sales territory?

Required:

a. State which of the above costs are relevant and irrelevant. Why?

b. Analyse the relevant costs related to keeping or discontinuing the Midah Gardens sales office. What should the company do (keep or discontinue Midah Gardens)?

c. What are TWO (2) qualitative factors that the company should consider in making its final decision?

4. A Co. and B Co. are competitors in a particular manufacturing sector. An extract of financial statements for each company is as follows: Use them in a ratio analysis that compares the companys financial leverage and profitability.

Item A Co. B Co.

Total assets RM10,000,000 RM10,000,000

Total equity (all common) 9,000,000 5,000,000

Total debt 1,000,000 5,000,000

Annual interest 100,000 500,000

Total sales 25,000,000 25,000,000

EBIT 6,250,000 6,250,000

Earnings available for

common stockholders 3,690,000 3,450,000

Required:

Calculate the following debt and coverage ratios for the two companies. Discuss briefly their financial risk and ability to cover the costs in relation to each other.

a. Debt ratio.

b. Times interest earned ratio.

c. Calculate the following profitability ratios for the two companies. Discuss briefly their profitability relative to each other.

d. Operating profit margin.

e. Net profit margin.

f. Return on total assets.

g. Return on common equity.

h. In what way has the larger debt of B Co. made it more profitable than A Co.? What are the risks that B Co.s investors undertake when they choose to purchase its stock instead of A Co.s?

i. While ratio analysis can provide some useful information concerning a companys operations and financial condition, it does have limitations. Discuss briefly.