Problem2 final v2.0
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  • Example1: Direct materials ink, toner, paper, and etc that required to run the printing machine, need to measure precisely and define the exact quantity for all directs materials required for a lot (or batch) size of printing volume.Without establishing the consumption of direct materials, simulation on how much quantity to be cut cost reduction will not succeed.direct materials does not help much to reduce overall variables cost as its will give an unfavoured impact to product quantity and quality.Example2: Direct Laboridentify job scopes for each employee who involves in the production printing - who and how many to run machines, who handles day-to-day jobs in the shop floorthen identifying who should be dismissed and who should stay.Without proper evaluation, risk of over cut-off employees may occur which could affect the production.initiatives of job skill empowerments to the employees to become multi-skills worker to do multifunction jobs.Example3: Direct Machine hoursDirect machine hours can be reduced by increasing the machine capacity in terms of efficiency to do more output per machine hours.book being produced will require less machine hours when the printing machine efficiency is increased.
  • As the fixed cost is unchanged, there is not much room to alter it especially on the salary and wages, insurance and depreciation.However, it can be done by executing a drastic changes on his financial structure for example refinance his bank loan or cut the management salary.

Transcript

  • 1. 29 Aug 2010 MANAGERIAL ACCOUNTING (ACC 720) PROBLEM2 – Datuk Kassim By: MOHD NOOR SATAPA 2010610062 AZAMIAH JAMALUDDIN 2010425354 MIMI SADINA ABU SAMAH 2010840986 NURHIDAYAH ISMAIL 2010408618
  • 2. 1.0 Issues & Assumptions 2.0 Analysis 3.0 Management Action & Solutions 4.0 Future Strategy and Recommendations 5.0 Conclusion
  • 3. 1.0 Issues & Assumptions 2.0 Analysis 3.0 Management Action & Solutions 4.0 Future Strategy and Recommendations 5.0 Conclusion
  • 4. 1.0 Issues & Assumptions Case background:  Datuk Kassim has a small publishing company.  He kept it simple with minimum investment.  He managed to earn profit in its early stage.  Company suddenly gain publicity thus increase sales by 25%  To fulfil demand, he began to invest heavily in machinery and equipments.  Result in high investment, he only earn 16¢ profit from every RM1 sold.  Situation getting worse, his sales drop 25% from previous peak level.
  • 5. 1.0 Issues & Assumptions Underlying issues found in Datuk Kassim case are:  Datuk Kassim has no detail planning and budgeting for his business.  Due to above, Datuk Kassim is struggling to meet the load of monthly expenses to keep his business afloat.
  • 6. 1.0 Issues & Assumptions Assumptions made before analyze the case: Datuk Kassim’s business publishes books and in average each RM100 book is published and sells at Datuk Kassim sold books monthly on average of 1000 units Monthly expenses on factory rent, machinery equipment, RM40,000 employee salary is estimated at Printing & royalty fees to writers per book is at RM84 His knowledge on budgetary planning None
  • 7. 1.0 Issues & Assumptions 2.0 Analysis 3.0 Management Action & Solutions 4.0 Future Strategy and Recommendations 5.0 Conclusion
  • 8. 2.0 Analysis Datuk Kasim need to understand his business cost behavior: Variable Cost COST BEHAVIOUR Fixed Cost Mixed Cost
  • 9. 2.0 Analysis Datuk Kasim also need to understand his Cost-Volume Profit analysis: COST PROFIT VOLUME But first he needs to adhere with CVP analysis assumptions:  The behavior of both costs and revenues is linear throughout the publishing activity.  Costs are either fixed or variable.  Number of books published is the only factor affecting costs.  All units published are sold.  When more than one book published, the sales mix will remain constant.
  • 10. 2.0 Analysis CONTRIBUTION MARGIN (CM): CM per unit = Unit Selling Price - Unit Variable Cost = RM100 - RM84 = RM16 CONTRIBUTION MARGIN RATIO (CM Ratio): CM Ratio = CM per Unit Unit Selling Price = RM16/RM100 = 0.16 or 16%
  • 11. 2.0 Analysis CVP Income statement for Datuk Kassim business: st CVP Income Statement for Month Ended 31 Aug 2010 Total (RM) Per Unit (RM) Sales (1,000 books) 100,000 100 Variable Cost 84,000 84 Contribution Margin 16,000 16 Fixed Cost 40,000 Net Income -24,000
  • 12. 2.0 Analysis BREAK EVEN POINT (BEP): Break Even Point = Fixed Cost CM per Unit = RM40,000 / RM16 = 2,500 unit of books sold MARGIN OF SAFETY RATIO (MoS Ratio): Margin of Safety Ratio = (Actual Sales - Break Even Sales) Actual Sales = (RM100,000 - RM250,000) / RM100,000 = -1.5
  • 13. 1.0 Issues & Assumptions 2.0 Analysis 3.0 Management Action & Solutions 4.0 Future Strategy and Recommendations 5.0 Conclusion
  • 14. 3.0 Management Action (Way Forward) Reason of understanding and applying of CVP analysis concept: 1. Determine product mix 2. Maximizing use of production facilities 3. Setting selling prices Elements to be analyzed : variable costs Sales Volume CVP fixed costs Mix of product sold Selling price
  • 15. 3.0 Management Action & Solutions 3.1 VARIABLE COST PER UNIT Contribution = Unit Selling - Unit Variable Margin Price Cost Break-Even = Fixed Cost Variable Cost Point Contribution Margin Dir/Mat reducing variables cost will give a direct impact Dir/Machine hrs to get a higher CM and as well a lower break- even Dir/ Labor Dir/energy CONTRIBUTION MARGIN
  • 16. 3.0 Management Action & Solutions 3.2 TOTAL FIXED COST Break-Even = Fixed Cost Point Contribution Margin FIXED COST Net = Contribution - Fixed Profit Margin Cost M/C deprec. insurance reducing the total fixed cost will help the business to achieve low BEP per Loan interest unit book – meaning a higher net income per unit book will gained. Factory rental Admin staff wages
  • 17. 3.0 Management Action & Solutions 3.3 EFFECT OF SALES VOLUME ON PROFIT able to assess early prediction and determine how accurate the gross sales volume level, and monitor the sales volume whether it is actually on track to make the profits or otherwise. SALES = VARIABLE + FIXED + TARGET COST COST NET INCOME Therefore, at a given selling price (e.g. RM100/unit), target net income, fixed cost and variables - sales volume can be determined required to achieve desired profit.
  • 18. 3.0 Management Action & Solutions 3.4 UNIT SELLING PRICE PRODUCT TARGET MARKET FEATURE SELECTION UNIT SELLING PRODUCT CHANNEL DECISION POSITIONING PRICE MARKETING PROMOTION STRATEGY
  • 19. 3.0 Management Action & Solutions 3.4 UNIT SELLING PRICE Contribution = Unit Selling - Unit Variable Margin Price Cost TARGET NET = CONTRIBUTION - FIXED INCOME MARGIN COST
  • 20. 3.0 Management Action & Solutions 3.5 SALES MIXED SALES MIX = SALES OF INDIVIDUAL PRODUCT TOTAL SALES OF THE COMPANY WEIGHTED-AVERAGE = (UNIT CM X SALES MIX %) + (UNIT CM X SALES MIX %) UNIT CM BEP = FIXED COST WEIGHTED-AVERAGE UNIT CM
  • 21. 1.0 Issues & Assumptions 2.0 Analysis 3.0 Management Action & Solutions 4.0 Future Strategy and Recommendations 5.0 Conclusion
  • 22. 4.0 Future Strategy & Recommendations RECOMENDATIONS  To have a business plan BUSINESS PLAN  Conduct market research on new product & innovative MARKET RESEARCH  Widen product range covering high-end to low-end PARTNETSHIP & VENDORS  Sub-contracting the printing process & binderies  Hire freelance to do editing, proof-reading & layout.  To venture into new technology NEW TECHNOLOGY  e-books, print on demand, accessible publishing
  • 23. 4.0 Future Strategy & Recommendations RECOMENDATIONS  Have a proper financial planning.  Ensure his business is liquid & ultimately profitable FINANCIAL PLAN  Apply for financial facility like Revolving Credit or Overdraft  Use to determine company long term investment CAPITAL BUDGETING  To implement Cash Payback Technique  To prepare for budgetary planning for control & evaluation BUDGETARY PLANNING  To ensure business run on pre-allocated budget  To use master budget
  • 24. 1.0 Issues & Assumptions 2.0 Analysis 3.0 Management Action & Solutions 4.0 Future Strategy and Recommendations 5.0 Conclusion
  • 25. 5.0 Conclusion By now Datuk Kassim should : Understand & know the importance of having basic business knowledge. Know it is important to know the impact of changes in market condition & customer demand to his business. Gain better understanding of his business structure, competitive advantage and capital requirements. Restructure, have new business plan, have a strategic plan and make a proper budget With our future recommendations & a master budget: Datuk Kassim can have ideas on how to manage his business effectively thus allow him to project future cash flow.
  • 26. THE END & THANK YOU
  • 27. 4.0 Future Strategy & Recommendations Cost Of Capital  Annual Cash = Cash Payback Investment Inflow Period  Assume RM12K spent on a machine with useful lifetime of 8 years.  Annual Saving of 6K in cash outflows are expected from operations. Cash Income per year = Net Income + Depreciation Expense Thus, P = RM12K / RM6K = 2 YEARS
  • 28. 4.0 Future Strategy & Recommendations