GSFM7514 Accounting & Finance Assignment: SAC Services & MEMC Budgeting and CCID Investment Evaluation, Singapore

University Singapore University of Social Science (SUSS)
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)

Accounting and Finance for Decision Making (GSFM7514) CONFIDENTIAL
May 2025 Final Assessment
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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
Accounting and Finance for Decision Making (GSFM7514) CONFIDENTIAL
May 2025 Final Assessment
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

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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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