GSFM7514 Accounting & Finance Assignment: SAC Services & MEMC Cash Flow Analysis with CCID Capital Budgeting Case Study
| University | UNITAR International University (UIU) |
| Subject | GSFM7514 Accounting and Finance for Decision Making |
QUESTION 1
SAC services provide Air Conditioner maintenance throughout Selangor. The company bases its budget overhead costs on the following data:
Budget Price and Expenses
| Price of Services | RM150 per Service |
| Variable overhead costs: | |
| Cleaning | 30 per Service |
| Maintenance | 10 per Service |
| Outdoor Expense | 20 per Service |
| Fixed overhead costs: | |
| Salaries and wages | 15,000 per month |
| Depreciation | 3,000 per month |
| Utilities | 2,000 per month |
| Premise Rent | 5,000 per month |
In January, the following actual costs were incurred for 250 services provided:
| Cleaning | 5,500 |
| Maintenance | 2,500 |
| Outdoor Expenses | 6,000 |
| Salaries and wages | 12,000 |
| Depreciation | 3,500 |
| Utilities | 1,650 |
| Rent | 5,000 |
Competition in the market has forced SAC Services to reduce the price charged to customers to RM120 for each service.
a. Prepare the Net Operating Income for the Budget and the Actual services.
(10 Marks)
b. Prepare a variance analysis report for SAC Services for the month of January.
(10 Marks)
c. To improve situation, SAC Services is considering 2 proposals. The first proposal is to relocate the business and pay less rent to RM2,000. Salaries and wages are to be reduce to RM11,000. This however will increase the actual outdoor expenses to RM26 per service. The second proposal is by terminating workers and to reduce salaries and wages to RM8,000. This will increase maintenance to RM12 per service. The price of the service will remain at RM120. Evaluate using break even analysis and comment which proposal is best for the company.
(10 Marks)
QUESTION 2
MEMC Company has just completed the second draft of their master budget. The cash budget summary shows a negative cash balance in Quarter 1, 3 and 4. The company is considering financing the deficits with a combination of long term and short-term loans. Short term borrowing will incur a 6% interest rate while a long-term loan interest rate will be 10%. Another plan is to negotiate a favorable term of credit from suppliers.
The Cash budget summary, the budget Income statement and the budget Balance Sheet are shown below.
Evaluate the cash budget situation and suggest actions that can be taken to prepare the company for the next period of operations. Prepare a new revised Cash Budget, revised Income Statement and revised Balance Sheet. Do not include any taxes in your calculations. Include liquidity, profitability, and debt management analysis in your evaluation.
(30 Marks)
MEMC for Budget Year 2025: Cash Budget
| Quarter | 1 | 2 | 3 | 4 |
|---|---|---|---|---|
| Cash Balance Beginning | 32,500 | -38,000 | 32,000 | -18,000 |
| ADD: Receipts | 450,000 | 500,000 | 500,000 | 500,000 |
| Total Cash Available | 482,500 | 462,000 | 532,000 | 482,000 |
| LESS: Disbursements | 520,500 | 430,000 | 550,000 | 500,000 |
| Excess (Deficits) of Cash | -38,000 | 32,000 | -18,000 | -18,000 |
MEMC for Budget Year 2025: Income Statement
| Sales | 2,000,000 |
| Cost of Goods Sold | 1,300,000 |
| Gross Margin | 700,000 |
| Selling and Administration Expense | 576,000 |
| Net Operating Income | 124,000 |
| Interest Expense | 1,200 |
| Net Income | 122,800 |
| Previous Retain Earnings | 449,900 |
| Add: Net Income | 122,800 |
| Less: Dividends | 20,000 |
| New Retain Earnings | 552,700 |
4
MEMC for Budget Year 2025: Balance Sheet
Current Assets
| Cash | -18,000 |
| Account Receivables | 150,000 |
| Raw Materials | 38,200 |
| Inventories | 34,000 |
| Total Current Assets | 204,200 |
| Land | 100,000 |
| Plant and Machines | 830,000 |
| Less: Accumulated Depreciation | 392,000 |
| Plant and Machines Net | 438,000 |
| TOTAL ASSETS | 742,200 |
Current Liabilities
| Accounts Payable | 14,500 |
| Total Current Liabilities | 14,500 |
Stockholders’ Equity
| Common Stock | 175,000 |
| Retained Earnings | 552,700 |
| Total Equity | 727,700 |
| TOTAL LIABILITIES AND EQUITY | 742,200 |
QUESTION 3
CCID plans to embark on a new investment in 2025 and will require RM15,000,000. The investment is expected to provide a return on invested capital (ROIC) of 16%. As of 31st December 2024, the Net Income stood at RM15,000,000. The company intends to pay Dividends amounting to RM4,500,000 and retained the balance. The number of shares is 10 million units. The expected growth rate of the dividends is 3.13%. The share price is currently RM1.55. The company is currently financed with 50% Debt. The current Beta of the company at this 50% level of debt is 1.2. The risk-free rate is 3% and investment analysts have estimated the Market Return is 18%. The corporate tax rate is 30%.
The company intends to reduce the use of debt and will finance the new project with 30% debt and 70% equity. The FTU Bank has indicated that any loans from the bank will incur a 15% interest rate.
The cost of issuing new shares will be 3% and will be added to the cost of equity.
Evaluate the situation and determine whether the company should go ahead with their plan.
(40 Marks)
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