Practice 1

(Past years)

PRITIKA GUNASEGARAN
PBS20101010

ACC 7101 ACCOUNTING FOR DECISION MAKING

ASSOC. PROF. DR. AHMED RAZMAN ABDUL LATIFF
PUTRA BUSINESS SCHOOL

19TH DECEMBER 2020

 FINAL ASSESSMENT 2020

QUESTION 1
a. Based on the table given, there are 4 categories of financial ratios that can be discussed on
the performance of Pogba Sdn. Bhd.:

Profitability ratio
Based on the data provided, we can compute the net profit margin, where the formula
as shown below:

Net Profit
Net profit margin (2019) = X 100 %
Revenue
= 187,000/945,000*100%
=19.79%

Net Profit
Net profit margin (2018) = X 100 %
Revenue
= 180,000/900,000*100%
=20%

So, based on the net profit margin computation, the company’s performance had
dropped by approximately 1% (20%-19.79%). Even though the profit shows there is
an increase of revenue (5%) from the year 2018 to 2019 as well as increase of the
profit (4%), it shows that the profitability of Pogba had dropped slightly, which may
be due to the inflation rate of 3.3%.

Next is the return on assets (ROA), which is 5.9% as compared to the industry ratio of
9.1%. This shows that the company is not using their assets effectively in their
operation that results in the low ROA.

As for the return on equity (ROE), the company’s ratio is slightly lower than the
industry ratio by 5.1% (18.2%-13.1%). This indicates that the company may not have
sufficient equity. Since there is not many information on the equity of Pogba, thus it is
based upon the observation of the company.

Liquidity Ratio
There are 2 liquidity ratio that we can look upon, which are quick ratio and current
ratio. These ratios are defined as how well the company can use their current assets to
pay their short-term debts.

Quick ratio shows that the company has 0.8 times ability to repay their short-term
debts as compared to the industry. This indicates that the company’s assets are not
liquid enough. Whereas the current ratio shows that the current ratio is quite good,
which is 2.3 times as compared to industry ratio. The difference between the current
ratio and quick ratio is the inclusion of inventory, thus the reason for the quick ratio to
be low, indicated that Pogba has high level of inventory that was not sold. However,
the current ratio still in the level of good performance although it is lower than the
industry ratio.

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 FINAL ASSESSMENT 2020

Efficiency ratio
The efficiency ratio provided is the account receivables turnover in days. Where the
company is able to collect the debts from their debtors in 18 days although the credit
terms is 30 days. It shows that the company is doing better in collecting their debts
from their debtors as compared to the year 2018.

Solvency ratio
The solvency ratio is the debt/equity ratio, where the ratio is 4.8% higher that the
industry ratio. This indicate that the company’s debt is higher than the equity, where
the company is in risky condition, where the performance of the company may be
jeopardized in the future.

b. i) Management – all the ratios are very important as these ratios will provide them the
relevant information for the decision-making process.

ii) Investors – all the financial information is quite important as they wanted to know the
efficiency of the company doing their business using the funds provided; however, the
most important ratio will be the profitability ratio and the liquidity ratio to look for future
dividends.

iii) Long-term creditors – the solvency ratio and the liquidity ratio are quite important as
they will use these ratios to discover the ability of the company’s ability to repay their
debts and what is their gearing currently. This is because the higher the gearing ratio, the
lower the potential for the company to get loan. Moreover, the profitability is also
important as the ability to pay interest will also require by the creditors.

iv) Short-term creditors – the liquidity ratio will be more important because the suppliers
wanted to get paid in the short-term to reduce the risk of bad debts.

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 FINAL ASSESSMENT 2020

QUESTION 2 (from past year)

Contribution Margin per unit

a. Contribution margin ratio = x 100 %
Selling Price per unit

Mega Muscle Power Gym PorForce

a. Contribution margin ratio = 51 77 62
170 220 310
= 30% 35% 20%

b. = 51+77+62
Overall contribution margin ratio 170+220+310
= 190.00
700.00
= 27%

Total contribution margin ratio = 30%+35%+20%

= 85%

c. Break even point in units = 468,000.00

51+77+62
= 468,000.00
190
= 2,463.16
= 2,464.00 units

Break-even in RM = BE in units*selling price

= 1,724,800.00

d. Monthly Oparating Income = (Contribution margin*sales volume)-FC

= 29,000.00

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 FINAL ASSESSMENT 2020

QUESTION 2 (FROM LECTURER)

Based on Mega Muscles.

a. Variable cost per unit = Selling price per unit−contributionmargin per unit

Question 2
Mega Muscle Power Gym
a. Contribution margin ratio = 51 77
170 220
= 30% 35%

b. Overall contribution margin ratio = 51+77+62

170+220+310
= 190.00
700.00
= 27%

Total contribution margin ratio = 30%+35%+20%

= 85%

c. Break even point in units = 468,000.00

51+77+62
= 468,000.00
190
= 2,463.16
= 2,464.00 units

Break-even in RM = BE in units*selling price

= 1,724,800.00

d. Monthly Oparating Income = (Contribution margin*sales volume)-FC

= 29,000.00

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 FINAL ASSESSMENT 2020

Question 2
Mega Muscle Power Gym
a. Contribution margin ratio = 51 77
170 220
= 30% 35%

b. Overall contribution margin ratio = 51+77+62

170+220+310
= 190.00
700.00
QUESTION 3

Question 2
Mega Muscle Power Gym
a. Contribution margin ratio = 51 77
170 220
= 30% 35%

b. Overall contribution margin ratio = 51+77+62

170+220+310
= 190.00
700.00
= 27%

Total contribution margin ratio = 30%+35%+20%

= 85%

c. Break even point in units = 468,000.00

51+77+62
= 468,000.00
190
b. ABC approach is better than traditional costing because the information provided using
ABC approach is much clearer as the overhead cost is based upon the activities or cost
drivers that actually incurred. In contrast, the traditional costing unitized the overhead
cost and will provide the wrong information on the cost of the units.

Moreover, the critical activities can be controlled to improve the firm’s operating cost.
ABC approach will help the managers to make a more accurate decisions as the cost
drivers will provide an accurate product costing for the company. Normally, the benefit
should outweigh the costs as ABC approach provide better pricing decision for the
managers as well.

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 FINAL ASSESSMENT 2020

QUESTION 4

Question 2
Mega Muscle Power Gym
a. Contribution margin ratio = 51 77
170 220
= 30% 35%

b. Overall contribution margin ratio = 51+77+62

170+220+310
= 190.00
700.00
= 27%

Total contribution margin ratio = 30%+35%+20%

= 85%

c. Break even point in units = 468,000.00

51+77+62
= 468,000.00
190
= 2,463.16
= 2,464.00 units

Break-even in RM = BE in units*selling price

= 1,724,800.00

d. Monthly Oparating Income = (Contribution margin*sales volume)-FC

= 29,000.00

b. The ending balance is surplus rather than the deficit; however, if they wanted to retain the
same amount every month, which is $10,000, thus seasonal loan should be taken. In
April, they will take $5,480 (10,000-$4,520) and in May $2,040 ($10,000 -$7,960) will be
taken. Thus, in June they will make repayment including the interest taken as the ending
balance is higher than $10,000 (refer to Table below).

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 FINAL ASSESSMENT 2020

Question 2
Mega Muscle Power Gym
a. Contribution margin ratio = 51 77
170 220
= 30% 35%

b. Overall contribution margin ratio = 51+77+62

170+220+310
= 190.00
700.00
= 27%

Total contribution margin ratio = 30%+35%+20%

= 85%

c. Break even point in units = 468,000.00

51+77+62
= 468,000.00
190
= 2,463.16
= 2,464.00 units

Break-even in RM = BE in units*selling price

= 1,724,800.00

d. Monthly Oparating Income = (Contribution margin*sales volume)-FC

= 29,000.00

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 FINAL ASSESSMENT 2020

QUESTION 5

Question 2
Mega Muscle Power Gym
a. Contribution margin ratio = 51 77
170 220
= 30% 35%

b. Overall contribution margin ratio = 51+77+62

170+220+310
= 190.00
700.00
= 27%

Total contribution margin ratio = 30%+35%+20%

= 85%

c. Break even point in units = 468,000.00

51+77+62
= 468,000.00
190
= 2,463.16
= 2,464.00 units

Break-even in RM = BE in units*selling price

= 1,724,800.00

So, if the company accept the special orders, thus the total contribution will be $1.24
million where they will have a underutilisation capacity of 5,000 units.

The non-financial consideration will be whether the company able to retain their
customers as LawnPro may sell cheaper the lawn mower at cheaper price as compared to
OISB as it will create a competitive market. They will lose out their market share as they
currently do not sell using the technology like LawnPro.

b. The company should reject the special order as they have reached full capacity of 100,000
of their production. If they keep still take on the special order, they may not able to sell to
reached their target profit and their fixed cost will remain the same as the capex
depreciation cost is a sunk cost.