N2MC Sdn Bhd a social enterprise company incorporated in Malaysia with the mission to advocate resilient infrastructure, promote inclusive and sustainable industrialize and foster innovation (SDG9). N2MC has two main two main outbounds which are building management application or software and LED lightings for building. NEW PRODUCT LINE The company was established since 2010, and will be celebrating its 10th anniversary next year. With that in mind, the board of directors proposed that N2MC to enhance LED lightings by adding non-explosive cover. The new improved LED lights will be known as EX-LED. In order to produce EX-LED, N2MC needs to invest on new molding machine which cost RM50,000 with required rate of return of 15%. The details of the new product line is as follows: Year Initial Cost and Book Value Annual Net After Tax Cash flows Annual Net Income 0 $ 50,000 1 $ 50,000 $ 70,000 $ 30,000 2 $ 50,000 $ 60,000 $ 40,000 3 $ 50,000 $ 50,000 $ 35,000 4 $ 50,000 $ 40,000 $ 25,000 5 $ 50,000 $ 30,000 $ 20,000 The financial year end for N2MC is December 31 every year. The company Operational flows is as follows: Inbound Process Outbound Main Operations Activities Wire LED Strip Metal Base Cover Assembling Packaging Quality Check LED light Wire LED Strip Metal Base Cover Resin Injection Moulding EX-LED light (new product line in 2020) 30 days trial Subscription Payment Training Technical support Building Management Applications/ Software Supporting Activities General Administrative, Finance, Human Resource Marketing & Promotion Research & Development Information Technology & Infrastructure 3 | P a g e Planning & Budget for financial year 2019 For financial year 2019, Sales Department was assigned to achieve budgeted sales of 70,000 units and 30,000 online subscription respectively for LED and Building Management Software. Selling at $30 and $2,500 for LED and Budiling Management Software respectively. It is also assumed that the selling price, direct material and direct labour cost remains the same as prior period, however overhead has been identified as follows: Depreciation of Computer & Equipments for application* $300,000 Depreciation of Building* $40,000 Utilities* $4,500,000 Maintenance & Upkeep of Production Facility** $100,000 Maintenance & Upkeep of Applications and Software** $200,000 Indirect Labour $504,000 Indirect Material $900,000 Other staff cost $2,000,000 Marketing and promotion $1,000,000 Research & Development $2,000,000 General administrative expenses $430,000 Training cost* $1,000,000 *75% of the companys computer & equipment, building, and utilities devoted to production activities, the remaining 25% used for selling and administrative function. ** 100% of the companys maintenance and upkeep of Production Facility and applications & software. N2MC Sdn Bhd Accounting Records ending 31 December 2018. N2MC kept their financial records using cloud based accounting system, the following information was extracted. Based on Built of Material Dec 2018 summary. Every unit of LED requires 0.3 metre of Wire per metre, 10 strips of LED strip, 1 pc of Metal Base and 1 pc of Cover. Cost of respective material are $2.00 per metre, $1.00 per strip, $4.00 per pc, and $3.00 per pc. Furthermore, the summary also included hours taken by operators to Assemble, Pack, and Check for Quality which are 1 hour, 6 minutes, and 12 minutes respectively for every 5 units. Each operator hourly rate is $10. Another Service Report Summary consists of information on Building Management Applications/ Software activities, which are trial 10 hours, subscription payment 12 minutes, training 50 hours, technical support 104 hours respectively for 10 subscription. Direct Labour Charge rate per hour for respective activities $20 for trial, $10 for subscription payment, $30 for training, and technical support for $50. Production Head of Department also alerted CEOs office, that, the current facility maximum capacity for LED is at 100,000 unit. Furthermore, Services Department also identified the maximum capacity for Software Subscription is only for 50,000 pax per year. In addition, the following is the allocation of cost pools: 4 | P a g e LED Production: 30% Injection Molding (unit) 0% Assembling (unit) 20% Packaging (unit) 5% Quality Check (unit) 5% Building Management Apps / Software 70% 30 days trial (subscription) 5% Subscription Payment (subscription) 5% Training (subscription) 15% Technical Support (subscription) 45% Note: In your responses, you are allowed to improvise or add to the case study details provided earlier. However, the case study should not be changed or compromised in any way. QUESTIONS: As an external consultant, you have been asked by Board of Directors of company to prepare a written briefing paper for their next Board meeting. N2MC Sdn Bhd profitability improved over the years. Board of Directors identified potential of expansion opportunities through introduction of new product line. Drawing upon research and current practice, you are asked to cover the following issues: 1. Analyse N2MC Sdn Bhd budgeted profitability for financial year ending 31 December 2019 using your chosen profitability budgeting by product and services (complete and/or excerpts whichever is relevant) (10 marks) 2. Analyse the cost behavior of direct overhead for financial year ending 31 December 2019. (1 marks) 3. Analyse appraisal on investment for production of new product line. Using time factor and non-time factor approach (4 marks)