JASPEN Development Sdn Bhd expert in construction of shoplots and shopping malls. The marketing manager identified a RM5,000 million project on development of a new shopping mall in Batu Kawan, Penang. The data related to the new shopping mall project is as follows:

Direct materials required:

1. 1,000,000 pieces of alluminium bar type G is required to be used in the project. The original cost of alluminium bar type G was RM80 per piece but as the bar has not been required for the last two years, it has been written down to RM25 per piece scrap value. The only foreseeable alternative use is as a substitute for alluminium bar type H (in current use) but this would involve further processing costs of RM15 per piece. The current cost of alluminium bar type H is RM55 per piece.
2. Other materials cost is RM1,210 millions.

Site workers required:

Total estimated site worker hours involve in this project is 54million hours. One third of the total labour hours is skilled worker and the rest is semi-skilled worker hours. A worker possessing the necessary skills is currently paid RM30 per hour. A replacement would, however, have to be obtained at a rate of RM24 per hour for the work which would otherwise be done by the skilled workers. The current rate for semi-skilled work is RM11 per hour and additional workers could be appointed for this work.

The other project costs are listed as below:

RM’million

Contractors 2,200

Legal Costs 250

Costs payable to local authorities 100

Required:

1. Determine the project net profit. Show all workings clearly.

2. Based on the project contract, the timing expected receipt and payments proportion are listed as below:

Beginning of year

2022 2023 2024 2025 2026

Contract value 10% 20% 65% 5%

Direct Materials 30% 30% 40%

Site Workers 25% 25% 25% 25%

Contractors’ Progress 30% 30% 20% 15% 5%

Legal Cost 100%

Cost payable to

Local authorities 50% 50%

Prepare the Yearly Cash Budget of the project. Show all workings clearly.

3. Determine the net present value of the project. Note: The management expects 20% annual return rate. Show all workings.

4. The Project Director proposed to negotiate with the client in order to improve the progress claim collection. He suggested to offer 5% discount on the project value as an incentive to the client to pay intactly based on the progress completion stages. (Note: the progress completion stages follow the Contractors’ Progress claims).

The Project Logistic Manager suggested to manage other material supplies based on zero stock and just in time acquisition. The company needs to pay additional 2% on the acquisition cost of the other material supplies when the company practices just in time stock management. (Note: no change on the futher processing cost to convert alluminium type G to alluminium type H).

Project Human Resource Manager informed the management that a special one week training course should be provided to all workers before the commencement of the project. Based on the previous statistic reports, workers’ productivity were be improved by 20% after they attended the course. The estimated training cost is RM5 millions.

i. Determine the revised Yearly Project Cash Budget. Show all workings.

ii. Determine the revised Net Present Value based on (d)(i) above. Show all workings.

iii. Discuss ten (10) matters to be considered on this revised proposal.

Note:

All figures to be rounded-up to the nearest dollar (no decimal point).

All workings must be shown clearly, and in addition to your written submission, a soft copy is to be handed in an Excel file.

5. Discuss the term ‘budgetary control’ and what are the five (5) benefits and five (5) limitations of budgetary control.