UNIVERSITI TEKNOLOGI MARA CAWANGAN PAHANG

DIPLOMA PERAKAUNAN

PRINCIPLES OF ECONOMICS
ECO211

PRICE OF RAW MATERIALS

LECTURER’S NAME:
MUHAMMAD ZAHRAN B HJ ABD RAHMAN

GROUP MEMBERS

NAME NO. MATRIX

HASRUL AZANI BIN KHAIRUL 2022857768

AKMAL BIN MUSTAPHA 2022615288

AMIR HAZIQ BIN ASFAZIAN 2022871244

MUHAMMAD FADHLAN FIKRI BIN 2022486794

MOHAMMAD FAUZI

1
 TABLE OF CONTENT

Content Page

Summary of the article 1

1.0 Introduction 2

2.0 The impact of problem to the Country 3

3.0 Measurement to overcome the problem 4

3.1 Government policies 4
3.2 Private Company, NGOs, University 5
3.3 Group Opinion 6

4.0 Conclusion 7

5.0 Appendix 8

2
Summary of the article

This article tells that most companies need to start reconsidering their current
arrangement of buying supply due to increasing cocoa and coffee bean prices. This is
predicted by Tradeview Capital Sdn Bhd fund manager, Neoh Jia Man. Dr. Yeah Kim Leng
from Sunway University predicts that Malaysia’s food import bill will also increase where
Malaysia’s coffee and cocoa imports account for 1% and 12% respectively.

He also stated that this situation can be advantageous for coffee and cocoa farmers
in Malaysia especially in Sabah and Sarawak as they can boost their production which
results in the country being less likely to rely on imports due to Malaysia’s advantageous
climate for coffee and cocoa cultivation. Meanwhile it can boost food security and
self-sufficiency. But he also points out that it takes up to three to five years for the plant to
mature and can be harvested. It is also stated that the coffee consumption will not decline
significantly due to consumer might have changed to less expensive products.

Economic analyst, Dr. Zulkifli Zakaria said that there will be two challenges that will
be faced by consumer goods which can impact medium-term purchase contracts for
companies and ensuring inventory levels of cocoa does not exceed 20% of future orders.
Malaysia imported cocoa beans and coffee at US$1.06 billion and US$303 million
respectively in the same year.

Nestle(Malaysia)Bhd chief executive officer, Juan Aranolds mentioned that Nestle’s

product might have some slight price increase and In a recent note, CIMB securities retailers
like Berjaya Food Bhd, 7 Eleven and etc may increase the price of the product that contains
coffee and cocoa. But it is also noted that consumption of cocoa is not as strong as coffee
on a daily basis and consumers might have spent it while realising there was an increase in
cocoa prices and coffee.

3
.
Chapter 1.0: Introduction

When a company wants to produce goods for customers, they need to have raw
materials in order to produce it. This shows that raw materials are essential for the
production of goods and knowing how much raw materials cost can determine the total
production cost in making the product so the company can set the selling price for the
product.

Raw materials are the materials or substances that will be used either in production
or manufacturing company. It either can be created by the company or it can be purchased
from a supplier. Some of the raw materials must be developed first before using it for
example like chemicals, steel and plastic while others don't need any modifications like
containers and fasteners. Raw materials also can be categorised into two groups, direct
materials and indirect materials.

Direct materials are materials that will be used directly onto the production. For
example a manufacturing company who produces a chair would need raw materials like
wood or plastic in order to produce it. Since the material can be used directly to the product,
the materials can be calculated for each individual item. These materials will be considered
as variable cost in production because the amount produced depends on the amount of
direct materials purchased.

As for indirect materials, it is an item that was not used directly to the product but acts
as a complement to enhance the product. We can take the previous example where after
they finished producing the chair, they needed to paint the chair as it makes the product look
appealing to the customers and it also can protect the chair from becoming mouldy. These
materials will not be calculated for each item but it will be considered as fixed or long term
assets.

Companies will allocate raw materials to the final cost of the product that they want to
sell. They also need to create a budget so they know much they need to buy for a certain
period of time. It is important for the company so that they can ensure their production is cost
efficient and follow the schedule of buying raw materials.

If companies did over-purchased the raw materials it will lead to wastage as it can
show that cost inefficiency and if the raw materials were not used in the production right

4
away, it will lead to the materials’ quality degrading as time goes on. This also can be called
scrap where it cannot be used in the production because it can lead to the goods not
meeting the quality standards and will cause the customers not interested in buying the
company’s product. While some scrap is unavoidable due to the production, the company
can still monitor it by having a proper budget and storing them properly.

But as the time goes by, the economy in our country starts to fall down as it leads to
the price increasing over a period of time. It can be due to inflation, climate changes or
supply shortage and this is very concerning because it can lead to the company having a
problem where the production cost will start increasing which leads to the company having
difficulty to achieve break-even point or even exceed it. The simple solution would be for the
company to increase the selling price of the goods but the problem arises for the customers
as their daily expenses are also increasing by raising the selling price. The customers may
be not buying the goods which will lead to the company having a lower sales unit than usual
due to our current economy.

Our group will be discussing further on the rising price of raw materials. What would
be the impact will be for the country and what are the appropriate measures to overcome this
problem.

5
Chapter 2.0 : The Impact of the Problem to the Country
1. Increase in production cost for companies
● The increased cost of raw materials can also make the cost of production go
up along with it. When the cost of raw materials goes up, the amount
companies related to production needs to spend is also increased. This also
will lead to the companies having a lower profit margin unless they pass it on
to the consumers.
● If they failed to pass on the increased cost to the customers and had to bear
the pressure itself, this can impact the overall business’s financial health
because of their struggle to gain profits.
2. Higher price for consumers
● If the business decided to pass on the increased cost of raw materials to the
customers, this can lead to the increased price of the product to the people.
This can put a pressure on the people because it will increase the cost of
living then decrease in demands will also affect the companies sales as well
as their revenue, this cycle will lead to inflation and shrink the economy.
3. Supply chain disruption
● Supply chain can be disrupted where the price of raw materials fluctuates, the
business will struggle to find an adequate supply of the certain materials if the
company relies on a specific raw materials that experience a price increase or
decrease. This can cause problems to the production schedules and delays in
delivering products to customers.
4. Competitive Pressure
● If the raw materials represent a significant portion of production costs for the
business, companies will face increased competition due to the rising of raw
materials’ prices.If a company can manage their costs or finds an alternate
materials, they will have a competitive advantage over other companies.

6
Chapter 3.0 Measurement to Overcome The Problem

3.1 Government Policies

● Give subsidies to both suppliers and consumers
- Subsidies can be given in the form of money,tax rebate, etc.The purpose aims
to foster an environment that will help the targeted industries develop,
innovate, compete worldwide, and make a major contribution to the stability
and prosperity of the economy as a whole.

● Applying Strategic Stockpiling

- Subsidies can be given in the form of money,tax rebate, etc.The purpose aims
to foster an environment that will help the targeted industries develop,
innovate, compete worldwide, and make a major contribution to the stability
and prosperity of the economy as a whole.
-

● Give an education and spread awareness

- Government should start to spread awareness about the increasing
price of raw material and also give an exposure to newly-established
companies in Malaysia. This will help companies and people to always
be on high alert so that they can be prepared for any crisis such as
price fluctuation,economical crisis etc.

7
3.2 Private Company, NGOs and University

● Monitor the company’s expenses

The company can combat the high inflation cost by monitoring companies expenses
like supplies, labour cost, utilities or many more. By practising this behaviour, the
company can identify the areas where the cost can be cutted or reducing the
company’s debt.
● Create a long-term budget
Companies can create a long-term budget because this can project the price that will
increase over time and the expectation of the company’s revenue growth. By creating
it, the company can continue operating the business while also knowing their financial
situation.
● Have a diversity of customer base
By having a diversity of customer base, it can reduce the risk of having a significant
revenue source. This is because the company can still receive revenue from other
groups of customers if the other customers change their buying habits or go
bankrupt.

3.3 Group’s Opinion

In our opinion, the increasing price of raw material is an event that will occur from
time to time and cannot be avoided, thus concrete and long term solutions need to
be made and started from now. There are two best solutions that our team members
can conclude : companies and firms should create a long term budget and the
government should give education and awareness to the people. These are long
term solutions that are more about prevention of the issue itself. Long term budget
will help companies and firms to detect potential risk of raw material price increase
and strategize ways to tackle the issue. Meanwhile education and awareness is
fixing social issues. The root cause of low raw materials level is wastage made by
the people itself which may seem small but have a huge effect on raw materials
levels and price.

8
4.0 Conclusion

In conclusion, the price of raw materials fluctuates because there are many factors
that cause it, whether it's controllable or uncontrollable. There are also many ways to
solve the issue by the government such as subsidies, stockpiling and education and
awareness. Firms and companies also can contribute to help the issue by monitoring
its own expenses, creating a long term budget and making decisions to diversify the
customer base. If all of this solution can be practised, the raw materials price level
can be more consistent and stable which will promote more economic growth. We
hope that all members of society are aware of the problem and help take steps to
prevent and tackle it to improve every person's standard of living at the same time
help our country Malaysia in the pursuit to be more advanced, prosperous and one
day achieve the dream to become one of the world strongest and largest economies.

9
References

Article

>https://www.nst.com.my/business/corporate/2024/04/1043872/rising-coffee-and-coc
oa-bean-prices-may-shake-fb-sector-supply
>https://www.nst.com.my/news/nation/2024/03/1022988/steel-cement-prices-continu
e-rise-last-month

Introduction

> https://www.indeed.com/career-advice/career-development/raw-materials-cost
Impact

>https://www.quora.com/What-is-the-effect-of-increasing-raw-material-prices-on-prod
ucts
Solution: Government

Subsidies;
https://www.investopedia.com/ask/answers/060215/how-do-government-subsidies-h
elp-industry.asp

Stockpiling:
https://bernas.com.my/commitment/midstream/national-stockpile-management

Education & awareness:

https://www.kpdn.gov.my/en/consumerism/programme/buy-malaysia-campaign

NGO, Private Company and University

>https://www.oldnational.com/resources/insights/5-ways-business-owners-can-mana
ge-the-high-cost-of-inflation-and-keep-debt-under-control/#:~:text=Monitor%20expen
ses%20closely,%2C%20utilities%2C%20and%20labor%20costs

10