QUESTION $1$

ABC Manufacturing Bhd$.$ produces a single product. Last month, they produced and sold $10,000$ units.

Their costs for the month were:

$1.$ Direct materials: MYR $50,000$

$2.$ Direct labor: MYR $80,000$

$3.$ Variable overhead: MYR $30,000$

$4.$ Fixed overhead: MYR$120,000$

$5.$ Budgeted fixed overhead: MYR$140\mathrm{.}000$ The standard cost per unit for the product is:

$1.$ Direct materials: MYR $4$

$2.$ Direct labor: MYR $6$

$3.$ Variable overhead: MYR $2$

Prepare an analysis of variance for materials costs, labor costs, variable overhead and fixed overheads against the standard costs. Provide suggestions to improve the situation.

$(25$ Marks$)$

Based on the variance analysis, ABC Manufacturing Bhd$.$ is considering purchasing a new machine for MYR$500,000.$ This machine would reduce direct labor costs by MYR $20,000$ per month but increase fixed overhead by MYR$30,000$ per month.

a$.$ Determine the total monthly savings$/$cost if they purchase the machine.

b$.$ Determine the payback period for the machine in months.

c$.$ Recommend whether ABC should purchase the machine based on the payback period.

$(15$ Marks$)$

Total $(40$ Marks$)$

QUESTION $2$

VV Corporation is considering an expansion project that requires an initial investment of RM$50$ million. The project will generate the following cashflows.

Year Cash Inflow $($RM Million$)$

$110$

$210$

$310$

$410$

$510$

$610$

$720$

The company is eligible to borrow at the following interest rate.

Amount Borrowed $($RM Millions$)$ Interest Rate

$58\%$

$108\mathrm{.}25\%$

$158\mathrm{.}75\%$

$209\%$

$2510\%$

$3010\mathrm{.}5\%$

Loans more than $3011\%$

A company similar to VV with $30\%$ debt in its capital structure has a beta of $1\mathrm{.}2.$ The risk$-$free rate which is based on an annual fixed deposit rate is $3\%$ while the return of the market is $18\%.$ VV currently is in the $30\%$ tax bracket. VV made it a point to accept investment decisions only on projects with positive NPVs$.$

a$.$ Determine the appropriate capital structure to finance the project.

$(40$ Marks$)$

b$.$ Recommend whether VV should accept the project.

$(20$ Marks$)$

Total $(60$ Marks$)$