Malayan Sugar Manufacturing

MSM Prai Berhad formely known as Malayan Sugar Manufacturing Company Berhad. It operates
in Prai Pulau Pinang. It is situated at Seberang Perai. It is located on the northwest coast of Peninsular
Malaysia. The facility is the countrys largest sugar refinery with a yearly production capacity of 960,000
tonnes of refined sugar, accounting for up to 86% of MSMs total production capacity. Besides, this Malayan
Sugar Manufacturing established in 1959. It is one of the manufacturing company in Pulau Pinang. Its mission
was to set up a sugar refinery in Malaysia. Besides, three companies which is one Malaysian and two Japanese
were participated as joint venture partners to form Malayan Sugar Manufacturing Company Berhad. Kuok
Brothers Sdn. Bhd. Was the Malaysian partner while the two Japanese partners comprised of Mitsui & Co. and
Nissin Sugar Manufacturing Company. A triangle logo, was chosen to represent that the three partnership of the
three companies that formed MSM.

Production cost
Production cost is the cost which begins with supplying of materials, labour and service and the
completion of production other terms used in this connection are factory overhead. For examples of production
cost for Malayan Sugar Company, is indirect labour. In indirect labour there is foremens salary, cleaners salary
and wages, security guard. Besides the another example Malayan Sugar Company factory rent, insurance of the
factory, indirect material like oil, greese, plyers, hammer, screw driver, power tools, cutter and brushes and
overtime wages.

Task 1
a) Direct Costs and indirect costs
-Direct Costs
Direct cost is a cost that can be found in full to saleable cost units that are being costed to produce a
product. Direct cost is also a costs that can be accurately traced to a cost object with little effort. It is a cost that
can be directly used in the production of a product. Direct costs include with direct material, direct labour and
direct expences.
Direct material is the cost of the raw materials that into the product. Direct material is also a
components used to create a product. It is a material used in making a product and become part of finished
product. For example, to produce sugar, the Malayan sugar manufacturing uses sugarcane to produce the sugar.
It is the main raw material to produce sugar. The direct cost will be higher when more material is needed to
produce a product.
Direct labour are the workers who are directly involved in the production of the product. They are
known as a people who do the core work of the business to produce a product. It also is the workers salary or
wages. They are known as those who work on the factory floor, they are the ones who actually do the work and
get their hand dirty. Direct labour are workers who enganged in altering the condition, conformation or
composition of the product and inspectors, and analysts and testers specially required for such production. For
example, in the Malayan Sugar Manufacturing, direct labour are the people who are producing the sugar. They
are the one getting the salary of doing the product. The direct cost will be higher when the time require in
producing a product is larger.
Direct expences are expences that occurred in the production of a product which can be identified with
the cost object. A company very often has to pay a certain sum of money to the patents rights holders for
making use of their know-how and design when manufacturing a product. It is classified as a direct expense,
since this cost is incurred specifically on the product. It is also a part of the finished product. For examples,
Malayan Sugar Manufacturing has to pay tax, commission related to sales, the cost of freight needed to
transport the sugar, and the materials used to produce sugar.

Direct
Direct material
Direct labour

List the things

Sugar cane, sugar beet
Labourers wages on producing

Direct expences

sugar
Tax paid, commission related to
sales, the cost of freight needed to
transport the sugar

-Indirect cost
Indirect cost is a cost that incurred in the course of making a product or providing a service, but
which cannot be traced directly and in full to the product or service. Indirect cost also known as overhead. It is
a costs that are not directly associated with a single activity, event, or other cost object. Indirect cost includes
with indirect material, indirect labour and indirect expences.
Indirect material is a category of indirect cost. Indirect materials are materials that are used in the
production process, but are not directly traceable to a cost object. Indirect materials are material used in
manufacturing processes which does not become important part of the product. Indirect material is also a cost
of which is not identifiable with or directly chargeable to it. For examples, Malayan Sugar Manufacturing use
some of

List the things

Plyers, hammer, screw

the tools

machinery

driver, power tools, cutter

things like

plyers,

,brushes, greese, oils

Salary of Cleaner of the

hammers,

Indirect
Indirect material

to repair

Indirect labour

screw

place, electricians,

power

supervisors, production

cutter,

staff, accountant, security

greese and
Indirect expences

guard
Rent,electricity,insurance of
the factory,water bill

labour is

the

driver,
tools,
brushes,
oils.
Indirect
also a

category of indirect cost. Indirect labours are not involved in the actual manufacturing of the product. Indirect
labour are workers who do not produce products, but who make their production possible or more efficient. For
example, cleaner of the place is indirect labour. Salaries of supervisors, electricians, production staff, security
guard, accountant and others.
Indirect expences is also a category of indirect cost. Indirect expences are costs are not identified with
any particular product manufactured so they are grouped under indirect expences. These costs may be allocated
to the cost of finished goods. For example are the rent of the factories, the telephone bills, utilities, electricity
bills, water bills and insurance of the factory.

b)Fixed costs, variable costs, and semi variable costs

-Fixed costs
Fixed costs is a cost that tend to be unaffected by increase or decreases in the level of activity. Examples
of fixed cost for the Malayan sugar company are salary of managing director, cleaner for the building, security
guard, loan for machinery things, the rental of the building. No matter when the product increases, the rental fee
is always the same.
Total cost (Rm)

Fixed cost

Activity level (Rm)

-Variable cost

Variable cost is a cost which varies directly with the level of activity. Variable costs are costs that
depending on a company's production volume as they rise as production increases and fall as production
decreases. For examples the cost of raw data, the direct labour costs and sales commission.
Cost (Rm)

Graph of variable cost

Level of activity ( Units of output)

-Semi variable costs

Semi variable cost are part variable costs and part fixed. Such costs have a fixed basic charges and a
variable cost for consumptions. Semi variable cost also known as mixed costs. Semi variable cost is a partly
affected by changes in the levels of activity. Example of semi variable cost are telephone bills, electricity bills,
water bills, gas bills, cost of running the lorry and utilities bill.
Cost(Rm)

Graph of Semi variable cost

Level of activity
Task 2
(a) Job costing
A job is a cost unit which consists of a single order or contract. Besides, job costing includes
in the accumulation of the costs of materials, labour, and overhead for the specific job. Job costing
involves the accounting activities such as material, labour, and overhead. A job is also a cost unit
which consist of single order or a contact. Job costing is a costing applied where work is undertaken
to customers special requirement each order is of comparatively short duration. The features of job
costing are work is undertaken to customers special requirement, each order is of short duration,
jobs move through operations as a continuously identifiable unit, jobs are usually and separate
records should be maintained, and job cost are collected on a job cost sheet. The example of job
costing used is refurnishing houses, house furniture and others. Example, Lavino Furniture is a

furniture manufacturing business in Penang. They received an order for 15 chairs from a customer in
Pulau Pinang. Total cost for the job was Rm 750. The cost per chair is Rm50. Direct material for the
Lavino furniture is woods. Direct labour for Lavino Furniture is the labourers wages on producing
the chair. Direct expences is the tax paid, commission related to sales, and cost of transport to
deliver the product to their customers. The reason for any business is to profit, and occupation
costing is the best approach to guarantee that happens. Occupation costing is a costing connected
where work is embraced to client's uncommon necessity every request is of relatively brief length of
time. Companies that used that method in job costing are designer companies, refurnishing house,
white collar business, medical service business and manufacturing companies.

JOB ACCOUNT
Materials issued X Finished jobs X
Direct labour

Direct expenses

Finished jobs

Production overhead at
predetermined rate

Other overheads

X
XX

JOB COST SHEET

XX

RM

Materials

Labour

Expenses

Overhead/production cost

Selling & administration cost

Total cost

Profit (loss)

Invoice price/ quoted price/ selling price

XX

(b)Batch costing
Batch costing is similar to job costing and a batch of identical units is manufactured. The total
cost is divided by the number of good units made to establish the unit cost, costs are gathered as for job costing
and when the batch is completed. In Batch costing several same items are produced as a batch. Each batch will
be given a number so that the costs can be traced into the batch. The batch costs can be averaged over the units
of produced. Companies that used that method in batch costing are pharmaceutical industry, readymade
garments and industries manufacturing televisyen parts.
The formula batch costing
Cost per unit =

Total batch cost

No. units in batch

(c)Service costing
Service costing is service organisations do not make or sell tangible goods. It is profit seeking
service organisations include accountancy firms, law firms, transport companies, banks and hotels. Almost all
not-for-profit organisations such as hospitals, schools, and libraries and so on are also service organisations.
Examples, Rapid Penang provide good transportation service to the people around Penang. One more example
is Disted College is giving the best education service to the students studying in that college. The purpose of
service costing in business as a basis for setting fees for service offered, to assess the profitability of each
service, to determine which services to promote, refine or withdraw , and to control costs . Companies that used
that method in service costing bus, trucks and rail - transport services, hosting and domain - iT Services
,electricity Companies - electricity services and gas and petrol companies - gas and petrol services.

The formula of service costing

Service costing =

Total costs for period

Number of service units provided in period

(d)Process Costing
Process costing is a costing that method used where it is not possible to identify separate units of
production, or job because of the continuous nature of the production processes involved like oil production,
sugar refining, chemical process and manufacture of soap, paint, food, drink and others. The features of process
costing includes the output of one process becomes the input of the next, closing WIP must be valued at the end
of the process, there is often a loss in process, there may be by-products and joint product, when production
consist of a continuous stream of identical units and it is not possible to identify separate units of production.
For example, the process use to produce sugar from Malayan Sugar Manufacturing are planting and harvesting,
preparation and processing, juice extraction pressing, purification of juice, crystallization, centrifuging, and
drying and packaging. The purpose of process costing in business is the main sensible way to deal with
deciding item costs in numerous businesses. The company that used the method in process costing are sugar
refining, oil production, chemical process, manufacture of paint and others.

Task 3
(a) Aproach 1 Marginal costing
Selling price = Variable cost + Profit
= $ 0.20 + ( 300 % + $ 0.20 )
= $ 0.80

Aproach 2 Absorbtion Cost

Selling price = Variable cost + Fixed cost + profit
Variable cost= $ 0.20
Overhead absorption cost = $ 0.20 x 400 %
= $ 0.80
Production cost = $0.80 + $ 0.20
= $ 1.00
Margin
= $ 1 x 25 %
= $0.25

Selling Price per unit = $ 1.00 + $ 0.25

= $ 1.25
Approach 3 : Activity based costing
Stores administration cost = $100 per ingredient used x 12
= $1200
Technician salaries = $ 300 per mixing operation x 8
= $ 2400
Dispatch cost
= $ 200 per customer delivery x 10
= $2000
= $ 1200 + $ 2400 + $2000
4000 units
= $ 1.4
= $ 1.4 + $ 1.25
= $2.65

(b)

The activity based costing would be more useful in costing products than a traditional
approach. The units costs would be more accurately reflect the activities performed and therefore the
resources used. An enhanced more exact item cost may empower an organization to focus on a more
beneficial blend of items or customers. Activity based costing recognises that many overhead costs
arise out of the diversity and complexity of operations and is also recognises this complexity with its
multiple cost drivers. Activity based costing helps identify those activities that add more to value than to
cost, so that the non value added items can be appraised effectively with a view of elimination.
Besides, manager will have a better understanding about the cost of production and the costs of the
activities performed by the company. Activity based costing facilitates a good understand of what
drivers overhead costs . Activity based costing concerned with all overhead costs, including the costs of
non-factory floor activities such as quality control , product design, production planning, sales order
planning and customer service and cost of factory floor activities. Moreover, activity based costing can
be utilized simply as a part of administration costing as in item costing. Furthermore, It can be applied
to derive realistic costs in a complex business environment. It can be connected to infer realistic cost in
a mind boggling business environment. Pricing is better organised in the activity based costing. Activity
based costing can applied to the entire business. Improves over all processes and waste is identified is
also the useful the activity based costing.

Task 4
(a) Sales = 400000 x 20%
= 480000
Direct wages = (120000/200000) + 0.20
= 0.6 + 0.2
= 0.80
=0.8 x 2000000
= 160000

Budgeted net profit

$
Sales

$
480000

Manufacturing costs
Direct material

96000

Direct wages

192000

Variable overhead
Fixed overhead

24000
28000

Budgeted factory profit

140000

Selling and distribution costs

Variable

340000

48000

Fixed

23000

71000

Administration cost
Fixed

39000

Budgeted profit

110000
30000

b) BE POINT ( in unit) =
Fixed Cost
Total constribution (Sales Variable Cost )
Sales volume

90000
(480000-360000) / 24000

90000
0.5
= 180000 units
MOS ( in unit )
Margin of safety

= Budgeted sell unit Be Point ( In unit)

=240000 180000
= 60000 units

c) Break even chart

Output ( unit )

Sales revenue ( $ )

0
24000

0
24000 x 2 = 480000

Variable cost ( $ )
+
0
360000

Fixed cost ( $ )

Total cost ( $ )

90000
90000

90000
450000

References

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