Convincing Features
Assignment Type
Subject
Uploaded by Malaysia Assignment Help
Date
Weighting: 20% of total marks for the course
Some accountants believe that financial statement analysis is of little benefit as it contradicts the findings of capital markets research. Discuss the findings of capital markets research and its implications for financial statement analysis. Discuss the general limitations of financial statement analysis.
Liverpool Traders uses 1,000 units of the sporting component every month to manufacture one of its products. The unit costs incurred to manufacture the component are as follows.
| Direct Material | $65.00 |
| Direct Labor | 45.00 |
| Overhead | 126.50 |
| Total | $236.50 |
Overhead costs include variable material handling costs of $6.50, which are applied to products on the basis of direct material costs. The remainder of the overhead costs are applied on the basis of direct labor dollars and consists of 60% variable costs and 40% fixed costs.
A vendor has offered to supply the component at a price of $200 per unit.
Required
a) Should Liverpool Traders purchase the component from the outside vendor if Liverpool Traders’s capacity remains idle? Explain. (8 marks)
b) Should Liverpool Traders purchase the component from the outside vendor if it can use its facilities to manufacture another product? What information will Innova need to make an accurate decision? Show your calculations. (8 marks)
c) What are the qualitative factors that Liverpool Traders will have to consider when making this decision? Discuss. (8 marks)
d) “If a product is generating a loss, then it should be discontinued.” Comment on this statement using relevant illustration. (6 marks)
ABC Manufacturing Ltd. is a medium-sized company that produces electronic components. Due to increasing costs, the management is considering outsourcing the production of one of its main components, Component X, to a third-party supplier.
The following details are available:
1. In-house Production Costs:
a) Direct materials: RM12 per unit
b) Direct labor: RM10 per unit
c) Variable overheads: RM5 per unit
d) Fixed overheads: RM8 per unit (based on an annual production of 50.000 units: 50% of fixed overheads are unavoidable)
2. Outsourcing Costs: The supplier offers Component X at RM30 per unit.
3. Additional Considerations:
a) If production is outsourced, 20% of the production floor can be rented out for RM200,000 annually.
b) The remaining workforce will be reassigned to other areas, incurring no additional costs.
Requirement:
a) Based on the given data, evaluate whether ABC Manufacturing Ltd. should continue in-house production or outsource Component X. Present your analysis with detailed calculations and a recommendation. (12 marks)
b) Discuss four key factors a business should consider before making an outsourcing decision. Provide examples to illustrate your points. (8 marks)
XYZ Manufacturing Ltd. is preparing its cash budget for the quarter ending June 30, 2025. The company is facing fluctuating demand, additional capital expenditure, and operational challenges. The management wants a comprehensive analysis to manage its cash flow effectively.
(A) Projected Sales
a) April: RM400,000
b) May: RM450,000
c) June: RM500,000
d) Collection Policy:
(i) 50% of sales are collected in the month of sale.
(ii) 30% are collected in the following month.
(iii) 15% are collected in the second month after sale.
(iv) 5% are written off as bad debts. Purchases
(B) Purchases:
(a) Purchases are 60% of the following month’s sales and are paid in the same month.
(b) Suppliers offer a 5% early payment discount if payments are made by the 15th of the month. XYZ Ltd. plans to utilize this discount where possible.
(C) Operating Expenses
(a) Fixed monthly expenses: RM70,000 (including RM20,000 for
(b) depreciation). Variable expenses: 12% of monthly sales (payable in the same month).
(c) An additional one-time marketing campaign costing RM80,000 is scheduled for May (payable in June).
(D) Capital Expenditure
(a) XYZ Ltd. plans to acquire a new production line costing RM180.000 in June. (b) Payment terms: 50% upfront in June, and the remaining 50% in July.
(E) Financing
(a) The opening cash balance on April 1, 2025, is RM50,000.
(b) The company has a revolving credit facility with a bank. Interest is charged at 1% per month on the outstanding overdraft balance.
(d) The company requires a minimum cash balance of RM40,000 at the end of each month.
Requirements:
a. Cash Budget Preparation (20 Marks):
Prepare a monthly cash budget for April, May, and June 2025, including:
i. Cash collections schedule.
ii. Cash payments schedule (including purchases, operating expenses, and other costs).
iii. Monthly cash balances and the use of overdraft (if required).
b. Strategic Analysis and Recommendations (10 Marks):
Based on your cash budget, answer the following:
i. Identify the months when the company may require overdraft and calculate the total interest cost by June 30, 2025.
ii. Recommend two strategic actions to improve the company’s cash flow and justify your suggestions.
