Question 1 You have been appointed as special assistant to the Finance Manager of a manufacturing company. The company has suffered a 40% decline in revenues and had to reduce costs through: Renegotiating rentals of spaces and Laying off staff Cancelling all bonuses and implementing pay cuts for remaining personnel The company has five established products and is considering whether addition of a sixth product line will be beneficial from a profit as well as risk management point of view. The Budget for next year therefore needs to be prepared with sensitivity adjustment. As part of your training, your Finance Manager has prepared the following schedule for you and asked you to complete it for discussion and implementation. Please complete the Budgeted Profit Statement for next year based on the Operations Budget parameters shown below: OPERATIONS BUDGET PARAMETERS FOR 2021 No. Item 1 2 3 4 5 6 7 Number of product lines Average Selling Price per Unit Expected Combined Volume (Units) Average Contribution Margin Fixed Operating costs Fixed Non Operating Costs Effective Tax Rate Projections based Projections based on 100% Budget on 100% Budget Achievement Achievement Five Six RM 25.48 RM24.50 50,000 59,000 28% 33% RM 268,800 RM 300,000 RM 45,000 RM 56,000 20% 20% BUDGETED PROFIT STATEMENT FOR 2021 No. Item Projections based Projections based on 100% Budget on 99% Sales Achievement (RM) Volume 1,274,000 356,720 1 2 3 4 Total Revenue Total Contribution from Revenue Less: Fixed Operating Costs OPERATING PROFIT Less: Fixed Non Operating Costs PROFIT BEFORE TAX Less: Tax at Effective Rate NET PROFIT AFTER TAX 5 6 7 8 [ 20 marks After completing the Budgeted Profit Statement above, answer the following questions: 1. The sensitivity of Net Profit after tax (NPAT) is the percentage change in NPAT for a 1% change in the Sales Volume. For this company: Change in NPAT after 1% change in Sales Volume = RM This represents a % change of % of NPAT 2. The Breakeven % change in Sales Volume = 100% / Sensitivity (as computed in the section above). For this company, it is: 100 / Sensitivity = % [ 5 marks ] [TOTAL 25 MARKS] Question 1 You have been appointed as special assistant to the Finance Manager of a manufacturing company. The company has suffered a 40% decline in revenues and had to reduce costs through: Renegotiating rentals of spaces and Laying off staff Cancelling all bonuses and implementing pay cuts for remaining personnel The company has five established products and is considering whether addition of a sixth product line will be beneficial from a profit as well as risk management point of view. The Budget for next year therefore needs to be prepared with sensitivity adjustment. As part of your training, your Finance Manager has prepared the following schedule for you and asked you to complete it for discussion and implementation. Please complete the Budgeted Profit Statement for next year based on the Operations Budget parameters shown below: OPERATIONS BUDGET PARAMETERS FOR 2021 No. Item 1 2 3 4 5 6 7 Number of product lines Average Selling Price per Unit Expected Combined Volume (Units) Average Contribution Margin Fixed Operating costs Fixed Non Operating Costs Effective Tax Rate Projections based Projections based on 100% Budget on 100% Budget Achievement Achievement Five Six RM 25.48 RM24.50 50,000 59,000 28% 33% RM 268,800 RM 300,000 RM 45,000 RM 56,000 20% 20% BUDGETED PROFIT STATEMENT FOR 2021 No. Item Projections based Projections based on 100% Budget on 99% Sales Achievement (RM) Volume 1,274,000 356,720 1 2 3 4 Total Revenue Total Contribution from Revenue Less: Fixed Operating Costs OPERATING PROFIT Less: Fixed Non Operating Costs PROFIT BEFORE TAX Less: Tax at Effective Rate NET PROFIT AFTER TAX 5 6 7 8 [ 20 marks After completing the Budgeted Profit Statement above, answer the following questions: 1. The sensitivity of Net Profit after tax (NPAT) is the percentage change in NPAT for a 1% change in the Sales Volume. For this company: Change in NPAT after 1% change in Sales Volume = RM This represents a % change of % of NPAT 2. The Breakeven % change in Sales Volume = 100% / Sensitivity (as computed in the section above). For this company, it is: 100 / Sensitivity = % [ 5 marks ] [TOTAL 25 MARKS]