Executive Summary

Legend Supply Sdn Bhd is a new company that is involved in several industries,
including the production of steel and zinc. Legend Supply Sdn Bhd has been
established in 1977 by Mr. Morgan. For this case study, we collect data from our
research and also from the company financial report and make some adjustments to the
financial statement for Cost Volume Profit (CVP) and Incremental Analysis reasons,
despite the sensitive and secret nature of the financial statement.
In this case study, we will use our understanding of CVP analysis and
incremental analysis to the annual income statement, balance sheet, and other financial
information of the company because of its long history in the sector and its year-over-
year exponential growth. The analysis allows us to make informed decisions about
pricing strategies and production techniques. We can identify which products and
services contribute to the bottom line, and which ones are not profitable.
We also would like to thank Prof Dr. Corina Joseph for the opportunity to use our
knowledge in Managerial Accounting and apply for this case study. This will be very
useful for evaluating performance to build a sustainable business. The primary
components of a company's sustainability are prudent planning, management, and
budgetary control. To establish excellent planning, managers must define SMART
(specific, measurable, attainable, realistic, and time-bound) targets. Management may
enhance the company's value and encourage corporate sustainability by putting these
goals into action.
1.0 Introduction
1.1 Company background
Legend Supply is a reputable business with headquarters in Kuching, Sarawak,
Malaysia. The company has made a name for itself as a dominant force in a number of
industries, including steel manufacturing, building, and engineering, thanks to its long
history and significant presence in the area. Since its inception in 1977, Lagend Supply
Sdn. Bhd. has continuously aspired to superiority and innovation. The business has
effectively established a reputation for providing top-notch goods and services that
satisfy the various needs of its clients in Malaysia and elsewhere. This company has
established itself as a reputable brand in the sector because of its dedication to client
satisfaction.
Legend Supply Sdn. Bhd. which is headquartered in Kuching, the capital of
Sarawak, benefits from a strategic location that enables it to effectively serve both the
domestic and foreign markets. Modern manufacturing facilities and cutting-edge
technology at the company allow it to produce a variety of steel products for industries
like manufacturing, building, infrastructure development, oil and gas, and construction.
The management is proud of its hardworking and qualified team. The company's
workforce is made up of qualified employees who bring their experience and skills to
every task. Legend Supply Sdn. Bhd. produces exceptional goods and services that
meet the highest industry standards thanks to its commitment to quality and attention to
detail. Legend Group Bhd. is a major player in engineering and construction, in addition
to steel production. The company has contributed significantly to the successful
completion of various emblematic projects, including commercial facilities, residential
complexes, and industrial plants. Customers from all over the region respect and trust
the company for its expertise and cooperative style. Legend Supply Sdn. Bhd. is
committed to sustainability and environmental responsibility as a responsible business.
The company reduces its impact on the environment by incorporating environmentally
friendly practices into its operations. The company is also actively involved in its
neighborhoods, supporting charitable causes and promoting regional economic
development.
1.2. VISION
“To be the leading building materials solution provider in Borneo Island.”

1.3 MISSION
We provide roofing and building materials that everyone prefers.
i. Meeting Customer’s Budgets and Expectations promptly
ii. Promoting Quality Products & Services Through Best Practices
iii. Pursuing Environmentally Friendly & Safe Operations

1.4 CORE VALUE

Sensitive ~ Solution ~ Safe ~ Strong ~ Speed ~ Sustainable

1.5 MOTTO
Affordable Shelter for Everyone

1.6 OBJECTIVES OF THE CASE STUDY

The case study objectives are as follows:
1. To do Cost Volume Profit (CVP) analysis using the annual financial report of Legend
Supply Sdn. Bhd.
2. To conduct iterative analysis using the special-order scenario before deciding
whether to accept or reject the order.
3. To analyze the trend and market analysis for Legend Supply Sdn.Bhd by considering
low demand for the year 2023.

1.7 FINANCIAL OBJECTIVE

The financial objective of the case study is as follows:
1. To reduce production costs to 60% for the year 2023.
2. To reduce variable costs to 80% in 2023.
3. To accept the order of 30 units of Envio Green House Systems for the month of
August 2023
2.0 COST STRUCTURE OF THE COMPANY
2.1 CURRENT BREAK-EVEN POINT (BEP) FOR THE COMPANY
Operational profit can be influenced by changes in cost and volume, hence Cost
Volume Profit (CVP) is a way of controlling operational profit. In terms of operating
profit, CVP analysis is also a useful tool for identifying changes in variable costs,
volume, and fixed or blended expenses.
The number of units that must be sold to reach the break-even point or a specific
minimum profit margin can also be projected using CVP analysis.

2.1.1 Current Variable and Fixed Cost

Legend Supply Sdn Bhd
Descriptions Variable Costs Fixed Costs
Direct Materials 12,903
Direct labor 30,000
Maintenance and Repairs 15,000
Energy and Utilities 5,500
Indirect Material and Supplies 3,700
Commission, Discounts, and Rebate 7,500
Packaging and Transportation 8,000
Rent 18,000
Salaries and Benefits 10,500
Insurance 700
Professional Fees 2500
Depreciation 5300
Licenses and Permits 680
Advertising and Marketing 850
Technology and Software 550
Telephone & fax expenses 180
Repair to plant & machinery 3500
General charges 2500
Total 82,603 45,260
Total costs 127,863
Table 1: Variable & fixed cost

Direct material
Envio Green House System
Material Monthly (RM) Yearly (RM)
PreZinc Square Hollow Tube 3,800.00 45600
GI Round Tube Pipe 3,300.00 39600
Galvanized Gutter 280.00 3360
Gutter Head 90.00 1080
Galvanized Y-Bracket 55.00 660
 Galvanized L-Bracket 55.00 660
Short/Long Ear Clip with Bolt Nut 25.00 300
Zinc Bar 6 MRT + Spring (3LGH)(PVC Coated) 240.00 2880
White Netting 1900.00 22800
Plan Wr Sheet with U/V 2,400.00 28800
Base Bracket 275.00 3300
Metal Hub 180.00 2160
1/2” Saddle Clip 30.00 360
Joint Pipe 75.00 900
G.I Long Spring 88.00 1056
Galvanized U Bolt 110.00 1320
Total 12,903.00 154,836
Table 2: Direct material

Cost per unit

Descriptions RM
Variable cost 82,603
Add: Fixed cost 45,260
Total cost 127,863
Assuming 50 units per month 50
Cost per unit maintained 2557.26
Table 3: Cost per unit

Mark-up and selling price

Description RM
Desire mark-up price is at 25% (25% X 2557.26) 639.32
Selling price per unit (2557.26 + 639.32) 3196.60
Sales (50 units X RM3196.60) 159,829 per month
Table 4: Mark-up & selling price

Contribution margin income statement

Description Total (RM) Per Unit (RM)
Sales (50) 159,829 3,197
Less: Variable Cost 82,603 1,652
Contribution Margin 77,226 1,545
Less: Fixed Cost 45,260
Nett Income 31,966
Table 5: Contribution margin income statement

Unit selling price and Contribution Margin for 50 units.

The selling price of RM3,197.00 per unit is derived from the cost per unit maintenance
plus a 25% mark-up price per unit.
 No Description Calculation Total (RM)
1 Selling price RM2557.26 + (RM2557.26 X 25%) 3,197
Table 6: Unit selling price for 50 units

By dividing the total variable costs by the unit output of 50 units, the variable cost per
unit of RM1,652 is further determined.

No Description Calculation Total (RM)

2 Variable cost per unit 82,603 / 50 units per month 1,652
Table 7: Variable cost for 50 units

Next, by deducting the unit selling price from the unit variable cost, RM1,545 in
contribution margin per unit is obtained.
No Description Calculation Total (RM)
3 Contribution margin per unit RM3,197 - RM1,652 1,545
Table 8: Contribution margin per unit for 50 units

By dividing the contribution margin per unit by the unit selling price, one comes up with
a contribution margin ratio of 48.32%.
No Description Calculation Total (RM)
4 Contribution margin ratio (RM1,545/ RM3,197)X 100% 48.32%
Table 9: Contribution margin ratio for units

The break-even point helps a business decide how many units and sales value (RM) it
has to achieve to avoid losses while still making a profit.

No Description Calculation Total (RM)

5 Break-even point ( RM) RM45,260 / 48.32% 93,671.47
Table 10: BEP in RM for 50 units

No Description Calculation Total (Unit)

6 Break-even point (Units) RM45,260 / RM1,545 29

By deducting the sales amount from the break-even point amount, the margin of safety
is determined. The corporation can control sales and monitor them at a safe range by
using the margin of safety as a buffer zone.

No Description Calculation Total (RM)

7 The margin of safety (units) RM159,829 - RM93,671.47 66,157.28
Table 12: Margin of safety in RM for units at 50

No Description Calculation %
8 The margin of safety (ratio) (RM66,157.28 / RM159,829)X 100% 41%
 Table 13: Margin of Safety in % for units at 50

Cost-Volume-Profit (CVP) Graph

The RM82,630 and RM45,260 total variable and fixed expenses are assumed in the
Cost-Volume-Profit (CVP) graph below, respectively. As a result, the variable cost area
is placed between the total cost and fixed cost lines, and the total cost line is drawn. As
unit production changes, so will the variable cost.
The break-even point is RM93,671.47 at 29 units with sales of RM159,829 for 50 units
of production of the ENVIO Green House System. Losses will occur if unit sales fall
below 29 units or RM93,671.47 in sales value.

Figure 1: CVP graph

2.2 REVISED BREAK-EVEN POINT (BEP) FOR THE COMPANY

2.1.2 Revised Variable and Fixed Cost
The company is forced to reduce its monthly manufacturing volume from 50 to 30
units as a result of the product's low demand. To match the market's reduced level of
demand, production must be adjusted. The corporation hopes to prevent inventory
accumulation and potential losses associated with producing more units than can be
sold by lowering output.
The company's proactive approach to successfully managing its resources in
response to market conditions may be seen in the choice to reduce its production. A
reduction in the amount of product production makes the company reduce variable
costs and fixed costs. By maintaining the selling price per unit to RM3,197.00, the
company had to make many cost changes to ensure that the company did not
experience losses. The direct material cost was reduced to 80% which is from
RM12,903.00 to RM10,322.00.
Direct Material

Descriptions Monthly (RM) Yearly (RM)

PreZinc Square Hollow Tube 3,800.00 45,600.00
GI Round Tube Pipe 3,300.00 39,600.00
Galvanized Gutter 280 3,360.00
Gutter Head 90 1,080.00
Galvanized Y-Bracket 55 660.00
Galvanized L-Bracket 55 660.00
Short/Long Ear Clip with Bolt Nut 25 300.00
Zinc Bar 6 MRT + Spring (3LGH)(PVC Coated) 240 2,880.00
White Netting 1900 22,800.00
Plan Wr Sheet with U/V 2,400.00 28,800.00
Base Bracket 275 3,300.00
Metal Hub 180 2,160.00
1/2” Saddle Clip 30 360.00
Joint Pipe 75 900.00
G.I Long Spring 88 1,056.00
Galvanized U Bolt 110 1,320.00
Total 12,903.00 154,836.00
Costs Reduce to 80% 10,322 123,869

The variable costs, such as direct labor, were reduced from RM30,000 to
RM15,000. The costs for maintenance and repairs were also reduced to RM6,875 from
RM15,000. Additionally, the variable costs for commission, discount, and rebate were
reduced to RM2,500 from RM7,500. Furthermore, the costs for packaging and
transportation were reduced from RM8,000 to RM5,663.
Descriptions Variable (RM) Fixed (RM)
Direct Materials 10,322
Direct Labor 15,000
Maintenance and Repairs 6,875
Energy and Utilities 5,500
Indirect Material and Supplies 3,700
Commission, Discounts, and Rebate 2500
 Packaging and Transportation 5,663
Rent 8,000
Salaries and Benefits 10,500
Insurance 700
Professional Fees 1000
Depreciation 5300
Licenses and Permits 680
Advertising and Marketing 277
Technology and Software 0
Telephone & fax expenses 50
Repair to plant & machinery 650
General charges 0
Total 49,560 27,157
Total costs 76,717

There have been significant reductions in fixed costs as well. The rental expense
has been revised from RM18,000 to RM8,000 per month. Professional fees have also
been reduced from RM2,500 to RM1,000. Furthermore, the expenses for advertising
and marketing have seen a reduction to RM277 from RM850.
The costs associated with telephone and faxes have decreased to RM50 from
RM180, and the repair costs for plant and machinery have been reduced to RM650
from RM3500. Moreover, the charges for technology and software, as well as general
charges, have been completely eliminated from the fixed cost structure. This means that
the company no longer incurs expenses for technology and software-related services,
and there are no longer any general charges being applied.
These reductions and eliminations in variable costs and fixed costs are to enable
the company to maintain the price of RM3,197 per unit.

Cost per unit after revising the costs

Descriptions RM
Variable costs 49,560
Add: Fixed costs 27,157
Total costs 76,717
Production 30 units
Cost per unit maintained 2,557

The cost per unit maintained was kept at RM2,557. This sum was calculated by
dividing the total costs of RM76,717 by the 30 units that were produced. It is crucial to
remember that this number was kept constant when the costs were revised. This
implies that the overall expenses stayed the same even after correcting the variable
costs and including the fixed costs, and as a result, the cost per unit remained at
RM2,557.

3.0 Discussion
Legend Supply Sdn Bhd’s objectives were to analyze the previous annual report
sales by adopting cost volume analysis and incremental analysis to access the
company financial statement and provide details for the management team to decide
the best strategy to make sure they can achieve their target goals and profits.
Variable cost and the fixed cost were computed and monitored to make sure Legend
Supply is achieving at the very least break-even point and able to gain profit.

4.0 Incremental analysis

Incremental analysis is a decision-making technique used in business to
determine the true cost difference between alternatives. It is also called the relevant
cost approach, marginal analysis, or differential analysis, incremental analysis
disregards any sunk cost or past cost. Relevant costs covered in an incremental
analysis might include variable costs, non-variable costs, opportunity costs, and other
costs that are relevant to the project. Incremental costs are used when a company
decides to accept or reject the order, deciding between making a product in-house or
outsourcing production, or deciding whether to repair or replace an asset.
In this case study, Legend Supply is to accept an order of 30 units of Envio
Green for the month of August 2023. By accepting the order, Legend Supply will need
to extra costs for shipping which cost RM1000 and RM2557 per unit with no changes in
fixed cost.
No Description Calculation Reject Accept Incrementa
l
1 Revenue 30 units x 2557 0 76,710 76,710
2 Cost of Goods 76,710 – 45,000 0 31,710 (31,710)
Sold
3 Operating 1500 0 1500 (1500)
expenses
4 Shipping cost 1000 0 1000 (1000)
5 Profits 0 42,500

5.0 Conclusion
 In conclusion, the analysis of Legend Supply Sdn Bhd’s financial statement using
the CVP analysis and incremental analysis has provided valuable insights into the
company’s performance and decision-making process. Understanding the cost structure
and break-even point will help the company in decision-making regarding the price
strategies and production levels.
By using the CVP analysis, we can determine the break-even point and calculate
the margin of safety for the company. With the information, the management team will
have access to company risk and make adjustments to production and sales strategies
accordingly. The CVP graph provides a visual representation of the relationship
between costs, volume, and profits, enabling the company to identify potential areas for
improvement and growth.
The incremental analysis was conducted for the special-order scenario demonstrated
the decision-making process when considering additional orders. By comparing the
incremental costs and revenues associated with accepting the order, the company can
assess the financial impact and profitability of the decision. In this case, accepting the
order of 30 units of Envio Green House Systems resulted in a significant increase in
profits.
Overall, the analysis conducted in this case study provides valuable insights for
Legend Supply Sdn Bhd to make informed decisions and improve its financial
performance. By effectively managing costs, understanding the break-even point, and
analyzing incremental opportunities, the company can strive for sustainable growth and
success in its industry.