Exercises for Lecture 1 and 2

SEMESTER 1, 2015/2016; TEST 1

SECTION A: True/False Questions [1 Mark each]

1.

One of the characteristics of a Partnership is each partner is paying his/her share of

personal income tax (2). T

2.

Period costs are costs that are matched against revenues on a time period basis (8). T

3.

Fixed cost per unit varies with changes in volume of output (8).T

4.

Marginal revenue is defined as additional revenue to total revenue as a result of a sale of

additional unit of output (1). T

5.

A cash flow statement indicates how much profit the company make during the fiscal year
(2). F

6.

A proprietorship is easily formed and inexpensive (2). T

7.

Total liabilities is equal to current asset plus current liabilities (2). F

8.

Current ratio indicates the liquidity of a company (2). T

9.

Total cost refers to activity cost per unit basis (2). F

10.

Retained earnings is profit that is not distributed to the shareholders (2). T

Section B: Multiple Choice questions [1 mark each]
11. If liabilities total $70,000 and stockholders' equity totals $50,000, then total assets must be
(2):
A. $20,000
B. $80,000
C. $120,000 /
D. $30,000
12. After graduating from secondary school, Siew Chin had three choices, listed in order of
preference: (i) attend matriculation , (ii) work in a printed circuit board factory, or (iii3) do
diploma at a college. Her opportunity cost of going to matriculation includes which of the
following (8)?
A. the income she could have earned at the printed circuit board factory plus the direct
cost of attending matriculation (tuition, textbooks, etc.)
B. the income she could have earned at the printed circuit board factory plus the benefits
of attending college for diploma /
C. the benefits she could have received from going to the college to do diploma
D. cannot be determined from the given information
13.

Which of the following item is not reported in the Income (Profit & Loss) statement (2)?
A. Expenses
B.
Sales
C. Depreciation
D. Liabilities/

14.

Which of the following would NOT improve the current ratio?

A. Borrow short term to finance additional fixed assets. /
B. Issue long-term debt to buy inventory.
C. Sell common stock to reduce current liabilities.
D. Sell fixed assets to reduce accounts payable.

15.

The gross profit margin is unchanged, but the net profit margin declined over the same
period. This could have happened if (2)
A. cost of goods sold increased relative to sales.
B. sales increased relative to
expenses.
C. the government increased the tax rate. /
D. dividends were decreased.

Exercises for Lecture 1 and 2

Section C: Answer ALL Part A and Part B

Part A [15 marks]
Below is the extracted data from the balance sheet of BROS Company on 30 th March 2015 (2)
Land and Buildings (RM)
Vehicles (RM)

6,800,000
1,020,000

Office Equipment (RM)

Inventories (RM)
Receivables (RM)
Long Term Liabilities (RM)
Cash (RM)
Equity (RM)
Accounts Payable (RM)

560,000
443,000
??
??
120,500
6,480,000
150,000

i. If the companys Debt ratio is 28%, determine the amount total financing (total
liabilities)supplied by the creditors. Write the formula that you used.
Debt ratio = Total Debt/Total Assets; 0.28 = X /9,009,000; X = 2,520,000 (total liabilities)
ii. If the companys Debt ratio is 28%, determine the amount Long term liabilities (only).
Write the formula that you used
Debt ratio = Total Debt/Total Assets; 0.28 = X /9,009,000; X = 2,520,000 (total liabilities)
Long term liabilities = Total liabilities Account Payable = 2,520,000 150,000 =
2,370,000
iii. Calculate the amount of Account Receivables (or Debtors Account) owned by the
company.
Liabilities = 2,520,000; Owners Equity= 6,480,000; thus L + OE = 9,000,000
A = 6,800,000 + 1,020,000 + 560,000 + 443,000 + 120,500 + Debtors
A = L + OE; Debtors = 56,500
iv. Determine BROSs Quick ratio (acid-Test ratio) for 2015. Write the formula that you used
Quick ratio = (CA Inventories) /CL = [56,500 + 120,500)/ 150,000 = 1.18
v. Refer to your answer in iv. If the average Quick ratio for market is 1 on, compare
companys performance against market as a whole.
The ability of the company to settle its current debt with considering its inventory is
better compared to market as a whole
vi. You are to prepare the Balance Sheet for BROS Company on 30th March 2015. Use the
figures you have calculated in i ii, and iii if deemed necessary.
Balance Sheet for BROS Company on 30th March 2015
Fixed Assets

Owner's Equity

Exercises for Lecture 1 and 2

Land and Buildings

6,800,000

Vehicles
Office Equipment

1,020,000
560,000

Current Assets
Inventories
Receivables
Cash
TOTAL ASSETS

443,000
56,500
120,500
9,000,000

Equity

6,480,00
0

Long Term Liabilities

2,370,00
0

Current Labilities
Accounts Payable
TOTAL OWNERs EQUITY &
LIABILITIES

150,000
9,000,00
0

Part B [15 marks]

a) A wind turbine blade manufacturer wants to expand its business into producing other wind
turbine components. As a long-established family-owned company, the expansion requires
very large amount of initial expenditure to set up new plant and a modern research and
development facilities. (2)
Required: Suggest one solution for the business to obtain the needed fund for the
expansion.
Corporatize to become a public company, with offer of shares/equity to be
subscribed by shareholders/investors, OR
Corporatize to become a public company, with offer of shares/equity to be
subscribed by shareholders/investors, OR
Borrow from financial institution/bank
b) Identify fundamental principle of engineering economics BEST applies in each of the situation
below (1)
Engineering
Situation
Economic
Principle
Hee Jaw needs to choose between 2 options either doing business with
Only the
Chuk or Mei. He should be considering the differences between the two difference
and not their similarities.
matters
Gung Gung is given a choice either to receive RM10,000 now or
Time value of
RM14,000 in 10-year time. He knows that a bank is offering return on
money
savings of 15% if he puts his money in the bank now.
Power in Water Inc. is considering investing its money in a joint-venture
The higher the
micro hydro power plant project with a small company in Bhutan. Power
risk, the higher
in Water Inc. should weigh all aspects of the joint-venture including the
the return
success rate of the venture.
Question 2
a) A company manufactures and retails clothing. In the right-hand column, write what type of
expense each item is. These can be analysed as to whether they are (8)
* direct materials (DM),
* direct labour (DL),
*
manufacturing overhead
(MOH),
* administration expenses (AE), * selling and distribution expenses (S&D),

Exercises for Lecture 1 and 2

1)
2)
3)
4)
5)
6)
7)

Cost
Lubricants for sewing machines
Interest on bank overdraft
Woven silk
Wages of security guards for factory
Cost of advertising products on television
Wages of operators in the pattern & cut department
Wages of forklift truck drivers who handle raw materials

Cost analysis
MOH
AE
DM
MOH
S&D
DL
MOH

b) Siti Moon has a catering business. One day she has to decide whether to accept Lizas or
Fazlis order, as she could not take both order at the same time.
If she accepts Lizas, she has to incur total cost of RM 3,000, and get net income of
RM1,500.
If she accepts Fazlis, she has to incur total cost of RM 4,500, and get net income of
RM1,000.
If she declines both orders, she still has to incur RM500 on the cook fixed salary (this
was included in both orders total costs)
What is Siti Moons opportunity costs if she accepts Lizas order?
Net income of RM1,000 from Fazlis order_
How much of the cost that should be considered as sunk cost if Siti Moons accept Lizas order?
Cooks fixed salary of RM500

Exercises for Lecture 1 and 2

SPECIAL SEMESTER, 2015/2016; TEST 1
Section A: True/False Questions. [1 mark each]
1.
2.
3.
4.

Time factor is the only the defining aspect of any engineering economic decisions. F
Profit maximization output level is at marginal revenue equals to marginal costs. T
Accounting focuses on the past, while engineering economics focuses on the future. T
It is better to receive money earlier than later because our purchasing power will increase
in the future. F
5. Fixed costs are zero when production is equal to zero. F
6. Steel in bridge construction is a direct raw material. T
7. Heat and light costs associated with a companys administrative function is a
nonmanufacturing costs. T
8. Fixed cost per unit varies with changes in volume. T
9. The quantity of a variable at which revenues and costs are equal is known as the maximum
cost point. F
10. The type of cost given below is a variable cost. T
Volume
Cost
1 unit
RM 18
10 units
180
100 units
1800
Section B: Problem Solving Questions
QUESTION 1 [ 7 marks]
OfficePro Manufacturing Company produces programmable models of graphic calculators that
can hold large amounts of data for the storage of programs and formulas.
(a) State at least TWO roles of engineers in this company. [2 marks]
Create & Design: Engineering Projects
Analyze: Production Methods, Engineering Safety, Environmental Impacts, Market
Assessment
Evaluate: Expected Profitability, Timing of Cash Flows, Degree of Financial Risk
Evaluate: Impact on Financial Statements, Firms Market Value, Stock Price
(b)
List down THREE prediction about the future made by OfficePro to manufacture the
calculators. [3 marks]
Estimating a Required investment
Forecasting a product demand
Estimating a selling price
Estimating a manufacturing cost
Estimating a product life
(c)

Give an example of an equipment replacement problem at OfficePro.

e.g. Now is the time to replace the old machine? If not, when is the right time to replace
the old equipment?

QUESTION 2 [13 marks]

Exercises for Lecture 1 and 2

QChair manufacturing company produces ergonomic small office chair that can contribute to
increased productivity , improved health and safety, increased job satisfaction and decreased
injuries and workers compensation claim in companies.
Financial data of the manufacturing process is as in the table below.
ITEM
Direct Materials Per Unit
Direct Labor Per Unit
Variable Manufacturing Overhead Per Unit
Variable Marketing and Administrative Expenses
Per Unit
Fixed Manufacturing Overhead
Fixed Marketing and Administrative Expenses
Selling Price Per Unit

(a)

RM
30
10
10
10
500,000
300,000
160

Calculate the contribution margin and interpret your answer (2)

P-AVC; AVC : 30+10+10+10 = RM60; 160-60 = RM100 [1 mark]: To cover for AFC and
profit per unit
(b)

What is the break-even sales?

MCR: 100/160 = 62.5% ; FC/MCR = 800,000/0.625 = RM1,280 ,000 Or

TR= 160Q; TC= 800,000 + 60Q; 160Q= 800,000+60Q; Q= 800,000/100 = 8000; 8000 *
160 = RM1,280,000
(c)

Calculate the total non manufacturing cost per unit at the break-even point.
(300,000 /8,000) + 10 = 37.5 + 10 = RM47.50

(d)

i. Do you agree that the quantity manufactured and sold should increase by 25% to make
a profit of RM200,000 compared to the break even point? Show your calculations.

(FC + PROFIT)/ MC; (800,000 + 200,000)/ 100 = 10,000 units; 10,000 units -8,000 units=
2,000 units
an increase of 2,000/8,000 = yes, 25% Or
160Q (800,000+60Q)= 200,000; Q = 10,000 units
From part (b), break-even units are 8,000 thus 10,000 units - 8,000 units= 2,000 units
an increase of 25%
ii.

What is the profit per unit at RM200, 000 profit?

200,000 / 10,000 = RM20 [1 mark]

(e)

Due to the shortage of supply of materials used to make the seat pan, the cost of direct
material per unit increases by RM5, all else remain constant. What will be the effect on
quantity to maintain a profit of RM200, 000?
160Q (800,000 + 65Q) = RM200,000; Q = 1,000,000 / 95 = 10526 units; an increase of
526 units to produce
and sell.]

Exercises for Lecture 1 and 2

COEB 442, Semester 1, 2015/2016

i. A rice cleaning equipment was purchased in December 2009 for RM8,500 and is yearly depreciated
by the double declining balance (DDB) method for an expected life of 10 years. What is the book
value of the equipment at the end of 2014? Original salvage value was estimated to be RM1,500 at
the end of 10 years. (hints: only do full year depreciation).
[9 marks]
ii. Give ONE out of three conditions must an asset satisfy to be considered depreciable. [2 marks]
i. DDB
rate:
Yea
r
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
201
7
201
8

1
1
0
BV begin

20.00
%

Dep

BV end

8,500.00

8,500.00

8,500.00

1,700.00

6,800.00

6,800.00

1,360.00

5,440.00

5,440.00

1,088.00

4,352.00

4,352.00

870.40

3,481.60

3,481.60

696.32

2,785.28

2,785.28

557.06

2,228.22

2,228.22

445.64

1,782.58

1,782.58

356.52

1,426.06

1,426.06

285.21

1,140.85

COEB 442, Semester 1, 2015/2016 (make-up)

(c)

Quality Plastics Inc. makes plastic bowls. It recently bought a new machine, on January 1, that
molds plastic pellets into the desired shapes. The price of that machine was RM480,000. It cost
RM8,000 to deliver the machine to the factory. It cost RM12,000 to install and properly calibrate
the machine. It has an expected useful life of 5 years, and is expected to have RM50,000 salvage
value at the end of 5 years. Calculate the depreciation percent of the new machine that will be
used to compute the depreciation amount, the amount of annual depreciation and book value at the
end of each year if the company decides to use double declining balance method.
[11 marks]
(2/5) = 40%
YEAR

DDB DEPRECIATION

BOOK VALUE

Exercises for Lecture 1 and 2

500,000

200,000

300,000

120,000

180,000

72,000

108,000

43,200

64,800

14,800

50,000

(c)

Beranang Paper Mill Sdn Bhd bought a paper cutting machine at the price of RM85,000 with an
installation cost of RM5,000. It has a useful life of 6 years and can be sold for RM8,000 at the end
of this period. It is expected that RM8,000 will be spent by the company to dismantle and remove
the machine at the end of its useful life.

(i)

Compute the annual depreciation allowances and the resulting book values and put them in a
table form by first using the straight-line (SL) depreciation method and then followed by the
double-declining balance (DDB) depreciation method.
[9 marks]

(ii)

Identify the optimal year to switch from double- declining balance (DDB)
depreciation to straight-line (SL) depreciation. Show your calculations to justify your answer.
[6 marks]

(c)

i.

SL Dep = (I S) /N
Salvage value (S) = RM8,000 - RM8,000 = RM0
SL Dep = (RM90,000 - RM0)/6 =RM 15,000

For DDB,
Year

0
1
2

= (1/N) x Multiplier =2/6 = 0.33

SL
depreciation

RM15,000
RM15,000

Book
value
using
SL
method

RM90,000
RM75,000
RM60,000

DDB
depreciation

RM29,700
RM19,899

Book value
using DDB
depreciation

SL
Depreciation
if Switching

Depreciation
value if
switching
occurs

RM90,000
RM60,300
RM40,401

RM15,000
RM12,060

RM29,700
RM19,899

Exercises for Lecture 1 and 2

RM15,000

RM45,000

RM13,332

RM27,069

RM10,100

RM13,332

4
5
6

RM15,000
RM15,000
RM15,000

Year to switch: Year 4

RM30,000
RM15,000
0

RM8,933
RM5,985
RM4,010

RM18,136
RM12,151
RM8,141

RM9,023
RM9,068
RM12,151

RM9,023
RM9,023
RM9,023