KASUS akuntansi biaya dan manajemen Saftel-Ready-Mix.pptx

kasus akuntansi biaya dan manajemen pptx

1. A Case Study on Shaftel Ready Mix Group 5 Exiomo , Maryanne D. Lizardo , Regina Lour Santiago, Chamuel Michael Joseph A. Santos, Maria Creselda B.

2. Synthesis Shaftel Ready Mix Concrete, aggregate and rock products

3. Synthesis Shaftel Ready Mix Concrete and Aggregate Products 3x Gross Revenue in 10 Years

4. Synthesis Shaftel Ready Mix

5. How viable is the proposed construction of additional plant in Scottsdale, Arizona? What is the significance of determining Net Present Value (NPV), Internal Rate of Return (IRR), payback period and break even point for the proposed plant? How must the company respond to the proposal of setting up a new plant in Scottsdale, Arizona? How can the company determine whether setting up a new plant will lead to a positive return of sales at an acceptable period of time? Statement of the Problem/s

6. CONTROLLER Point of View

7. Statement of the Objectives

8. Capital investment decision are concerned with acquisition of long-term assets such as the proposed Scottsdale plant in this case . The proposed plant is an independent project , which means whether the proposal is accepted or rejected, cash flow of other projects of Shaftel will not be affected. Areas of Consideration

9. P ayback period determines the time required for a firm to recover its original investment. Areas of Consideration

10. Areas of Consideration

11. N et present value measures the profitability of an investment. Interest rate of return is the interest rate that sets the present value of a project’s cash inflow equals to the present value of the project’s cost. Areas of Consideration

12. Book Value not considered: NPV of $ 306,698 IRR that is between 25% and 30% ( df =3.28358 ) P roposed plant will be able to increase the firm’s profitability and the project is acceptable.

13. A t breakeven, the plant should produce 29,859 cubic yards of cement and using the break-even amount, the NPV is -$6,675 and discount factor is 6.26335 which is between 9 percent and 10 percent. Areas of Consideration

14. ACA 1: Accept the proposal to set up a new factory in Scottsdale, Arizona . Pros: Add $306,698 to its value. It will be able to operate year round. The payback period is less than 4 years. Take advantage of untapped markets. Maximize use of current assets (with total book value of $230,000) which has no outside market value. Cons:   The projected return of sales is lower than the company’s average. Alternative Courses of Action

15. ACA 2: Reject the proposal to set up a new factory in Scottsdale, Arizona. Pros: Invested in a bank or other investment project at 10% interest, the capital would be $912,997 in 10 years. Less risky than investing on new capital. Cons : Inability to operate year round Inability to take advantage of the exceptional growth rate in Arizona. Not able to maximize current assets (furniture and equipment) available. Alternative Courses of Action

16. Factors: Return of Investment 30% Risk 20% Profitability/ Competitiveness 50% Total 100% ACA 1: Accept the proposal to set up a new factory in Scottsdale, Arizona. 20 15 45 80 ACA 2: Reject the proposal to set up a new factory in Scottsdale, Arizona. 25 19 25 69 Decision matrix

17. The company will be adding $306,698 to its value. Positive Net Present Value (NPV), it shows that the proposed plant will be able to increase the firm’s wealth and profitability. IRR is between 25 to 30% which is greater than its cost of capital or hurdle rate at 10%. Improvement in the quality of products and reliability of the company .   The project would pay for itself less than the 4 years as per company policy. Take advantage of untapped markets. Maximize use of old furniture from its closed down plant in Wyoming . Recommendation ACA 1: Accept the proposal to set up a new factory in Scottsdale, Arizona.

18. It is important to weigh risks and benefits when determining capital investment decisions. One may determine if a proposed long-term project is acceptable using discounting and non-discounting models. Learning Points

19. Thank you 

20. Annex

21. With above variable-costing income statement, fixed overhead is treated as an expense. Since the computed ratio of net income to sales turned to be 3.24%, Karl is correct in stating that the Return on Sales (ROS) is significantly lower than the company’s average between 7.5 and 8.5%. This signifies that if the company would invest in the proposed plant, it would earn less than 4.26 to 5.6% from the normal company’s sale average. 1. Prepare a variable-costing income statement for the proposed plant. Compute the ratio of net income to sales. Is Karl correct that the return on sales is significantly lower than the company average?

22. Karl is wrong. Book value of the equipment and the furniture should not be included in the amount of the original investment because there is no opportunity cost associated with them. These items would only be transferred from a plant that opened in another state, Wyoming, during the oil boom period and closed a few years. Excluding the book value reduces the investment from $582,000 to $352,000. Karl’s payback would be correct if the equipment and furniture could be sold for their book value because there would now be an opportunity cost associated with them and that cost should be included in the original investment. 2. Compute the payback period for the proposed plant. Is Karl right that the payback period is greater than 4 years? Explain. Suppose you were told that the equipment being transferred from Wyoming could be sold for its book value. Would this affect your answer?

23. 3. Compute the NPV and the IRR for the proposed plant. Would your answer be affected if you were told that the furniture and equipment could be sold for their book values? If so, repeat the analysis with this effect considered.

24. Given two different situations regarding equipment and furniture, whether these can be sold for their book values or would only be merely transferred from one plant to another, will have a great impact on our decision making process. If these items will only be transferred from an old plant to the proposed plant, it would generate IRR between 25 to 30%. Since the cost of capital is 10%, we may conclude that the proposed plant should be accepted because IRR is greater than its cost of capital. This will result to a positive Net Present Value (NPV, resulting to an increase in firm’s wealth profitability. On the other hand, if these items can be sold for its book value, from above’s computation, its new IRR turns out to be between 12 to 14%. Still, our new IRR is greater than cost of capital of 10%. We may conclude the proposed plant’s inflow is greater than our initial outlay. However, it resulted to a lower amount of profitability when compared with equipment and furnitures merely transferred from the old plant.

25. 4. Compute the cubic yards of cement that must be sold for the new plant to break even. Using this break-even volume, compute the NPV and the IRR. Would the investment be acceptable? If so, explain why an investment that promises to do nothing more than break even can be viewed as acceptable.

26. The investment is unacceptable. IRR is lower than its cost of capital of 10% which results to a negative NPV. However, it is also possible to have a positive NPV at the break-even point. Breakeven is defined for accounting income, not for cash flow. Since there are non cash expenses deducted from revenues (ie. depreciation), accounting income understates cash flow income. Zero income does not mean zero cash inflows and vice versa. Suppose we have $ 100,000 as our depreciation expense and everything remain constant, it would result to a positive NPV of $ 262,457 cost of capital at 10%. Its IRR has been computed between 25 and 26% which is greater than its  cost of capital at 10%. IRR = $352,000 (initial investment) / 100,000 (yearly cash flow which is depreciation) = 3.52 (present value factor of annity).

27. Cost of Capital = 10% for 10 years, so df = 6.14457 5. Compute the volume of cement that must be sold for the IRR to equal the firm’s cost of capital. Using this volume, compute the firm’s expected annual income. Explain this result.

28. An alternative solution is as follows:

29. From above computation, we can conclude selling 30,017 or 29,968 units (rounding off difference) will result in Internal Rate of Return (IRR = 28%) to equal with project’s cost of capital (10%). At this rate, company’s net income is close or at zero. Once the company gets to sell more than 29,968 units, it is safe to say that for every unit sold thereafter, they have covered for their fixed costs and already earned net income.