CIA 2009 MANAGEMENT ACCOUNTING
SEMESTER 2 2018/2019
GROUP ASSIGNMENT
PREPARED FOR : DR. ELAINE OON YEN NEE
NO NAME OF GROUP MEMBERS MATRIC NO. SIGNATURE
1. AISYAH AZREEN BINTI AMIR CIB 170002
2. ARFA NASUHA BINTI NASRUDIN CIB 170009
3. NOR ALIA SHAZANA BINTI ZULKIFLI CIB 170074
4. NUR DANIA AMIRAH BT ABDUL AZIZ CIB 170081
5. SITI NUR SYAHIRAH BINTI RAZAK CIB170105
TABLE OF CONTENT
1. INTRODUCTION 2
2. COMPANY’S STRATEGY 3
3. COMPANY BUSINESS RISK 5
4. MANAGERIAL ACCOUNTING INFORMATION 7
5. COMPANY’S DIFFERENT TYPES OF COSTS 8
6. BREAK-EVEN POINTS 13
7. NEW BREAK-EVEN POINT 17
8. OPERATING LEVERAGE 18
9. SIMPLE BUDGET 19
10. RELEVANT REVENUES AND COSTS IN DECISION MAKING 21
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1. INTRODUCTION
Dutch Lady Milk Industries Berhad is a manufacturer of cow milk and other dairy products such
as yoghurts and formula milk based in Malaysia since 1963. It was first founded by Dutch farmer
families in 1871. It was also a part of a Netherlands-based multinational organization called
Royal FrieslandFoods. At first, Dutch Lady Malaysia was established as a manufacturer of
sweetened condensed milk back in the 1960s where their factory was located in Petaling Jaya.
Now, they are still functioning from the same production plant in Petaling Jaya but with a larger
range of delectable dairy goods. Dutch Lady Malaysia is now a subordinate company of
FrieslandCampina, a combination of FrieslandFoods and Campina.
Their missions include to remain as a leader in the Malaysia’s dairy industry and to supply
Malaysians with trusted dairy nutrition. They have been honoured with many awards such as the
National Safety Award in the Occupational Health & Safety 2013 event and the Gold Award in
the Putra Brand Awards in the category of Beverage-Dairy in 2014. Besides that, Dutch Lady
Malaysia has obtained cerfitications under many standards for instance the ISO 9001 , ISO
14001:2004 Environmental Management System (EMS) and OHSAS 18001:2007. Other than
that, all Dutch Lady Malaysia's products including their imported products are certified Halal by
the Halal Hub Division of the Department of Islamic Development, Malaysia (JAKIM).
Therefore ,it is safe and healthy to consume their produces.
Dutch Lady Malaysia has continued to produce and introduce new products into the Malaysian
market. Their main plant is located at Petaling Jaya, Selangor, Malaysia. They have been
implementing the use of ultra-high-temperature processing (UHT) and advanced packaging
technology since 1970s to produce good quality milk. For example, they produced sterilised milk
locally and packed them in plastic bottles in 1983. They also produced chilled milk products in
1986 and fruit yoghurt in 1988.Until now,the company has proceeded to launch brand new dairy
products into the Malaysian dairy market.
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2. COMPANY’S STRATEGY
There are three types of strategies that companies can use to succeed in the marketplace. They
are customer services strategy, operational excellence strategy and product leadership strategy.
Dutch Lady Milk Industries Berhad has been relying on the product leadership strategy since
they are the leader in the dairy industry in Malaysia. Product leadership means being a leader
that constantly brings good-quality products to market.
Dutch Lady Milk Industries Berhad was the first milk organization to be recorded on the Stock
Exchanges of Kuala Lumpur and Singapore. They have continuously innovated to strengthen
their position as the leader in the dairy industry in Malaysia. The key pillar to their business
strategy is the Corporate Responsibility. They have demonstrated their enthusiasm in the by
concentrating on balanced nutrition, social and environmental responsibility and dairy self
sufficiency.
This company has been focusing on balanced nutrition by ensuring adequate nutritive food to
help hinder undernutrition and a lack of nourishments. They have also been fighting obesity and
nutrient deficiency by making sure that their products are reliably produced, healthy and
obtainable in assorted choices and sizes.
Dutch Lady Milk Industries Berhad supports qualified organisations through sponsorship and
donation of their dairy products as a part of their focus on social and environmental
responsibility. They are putting efforts to be partly responsible for a greener environment by
using natural gas in their manufacturing operations.
This company has also been helping local dairy farmers make their business more sustainable by
working together with the Department of Veterinary Service (DVS) Malaysia and the
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Netherlands Embassy since 2008. They have aided local farmers to expand their production of
milk in both quality and volume .
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3. COMPANY BUSINESS RISK
Product Quality and Food Safety
Based on annual report of Dutch Lady, we found that the quality of product is poor or the
product is contamination that cause health hazards for consumers. This is due to production
process problems that cause quality defects. Beside that, the poor quality of product is because
deliberate spread of quality problems by third parties. Product quality is controllable risk this is
because company can take action to decrease the risk. For example, the company can use internal
quality and food safety system with FoQus quality program and undergo periodic audit
verification to decrease the risk.
Price of Dutch Lady
The price of Dutch Lady compares with other competitor such as Farm Fresh, Nestle and
Marigold is quite high. Based on research, the price of Dutch Lady fresh milk is RM7.20
compare to Farm Fresh fresh milk and Marigold is only RM7.00. In Malaysia, most of people
are middle income and they will prefer cheap product. Based on this, the profit of Dutch Lady
will decrease compared to other two brands. This risk is controllable because Dutch Lady can
decrease the price of the product to compete with other brand.
No direct market experience
Dutch Lady has no direct market experience because it only sold in hypermarket, supermarket,
grocery store and also convenience shop this is because Dutch Lay does not supply to end-user
abroad. Dutch lady can use direct market to improve relationship between consumer and supplier
and also can get more information from target consumer while improve the quality of product
and satisfy customer need and want. Besides that, Dutch Lady also does not have feedback
section in the website, makes it difficult for Dutch Lady to get feedback from consumer. Direct
market experience is controllable risk because dutch lady can control the risk by enlarge their
sales to aboard.
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Increasing cost of raw materials
Based on The Malaysia Reserve (2017) , Dutch Lady Malaysia MD Rahul Colaco said that the
price of raw materials of its product has risen between 25% and 30% in the year due to increased
demand from China. Beside that, Colaco said that New Zealand is one of the world’s main
producers of milk product has also made the situation worse globally. This situation will make
the prices of formulated powder for children and family milk beverage to slightly increase by
5%. Increasing cost of raw material is uncontrollable risk this is because Dutch Lady can’t
control price of raw material due to raw materials are getting less day by day since our
environment is in endangered.
Lack of product awareness
Due to Dutch Lady is the first producing Ultra-high temperature processing (UHT) fresh milk in
Malaysia, they lack of awareness and experience in field of UHT milk. Most of Malaysian lack
of the information of UHT for them to refer or discuss. Since Dutch Lady is the early company
to launch out the UHT milk, most of Malaysian still don’t have the knowledge about UHT milk.
Dutch lady need to increase advertisement to develop product understanding or send to direct
explain to customer and lead to increase the cost and price of sell. Product awareness is
controllable risk since it can control by increasing the marketing program.
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4. MANAGERIAL ACCOUNTING INFORMATION
All organizations need information, whether they are profit-seeking or nonprofit enterprises and
regardless of activities they pursue. As a result, managerial accounting information is vital in all
organization. Managerial accounting provides information about accounting to managers inside
an organization and operation management, to help them make decisions to control the
operation. Accounting information provides information on the costs of an organization’s
products and services, which accounting can use products cost to setting the selling price.
The users of managerial accounting in Dutch lady is managers and all the accounting within the
organization. The users of financial accounting in Dutch lady would be interested parties such as
stakeholders, banks and outside the organization. Next is regulation, managerial accounting does
not required any regulation and unregulated, since it is intended only for management.
Regulation is required for financial accounting and must conform to generally accepted
accounting principles. The regulation is regulated by the Financial Accounting Standards Board,
and to a lesser degree, the Securities Board, and Exchange Commission.
The source of data for managerial accounting , Dutch Lady will use the basic accounting system
plus various other sources such as rates of product manufactured, quantities of material and labor
used in production. For financial accounting, Dutch Lady almost licensed from the basic
accounting system of the companies, which mulates information of financial. Beside that, the
nature of report and producers for managerial accounting Dutch Lady often focus on subunits
within the organization, such as department, geographical regions, divisions, or product lines
based on a combination of historical data, estimation , and future project event. For financial
accounting, Dutch Lady focus on the enterprise in its fully almost exclusively on historical
transaction data.
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5. COMPANY’S DIFFERENT TYPES OF COSTS
Costs are the important elements that must be construct in order to run a business. Every factor
of production has a different types of costs. Costs can have a different relations to output. It used
in different types of business applications, such as cost accounting, financial accounting,
budgeting and capital budgeting. It can be categorized in different ways according to their
relations to output and to the conditions in which they are used.
As for Dutch Lady, which is a big company, there are several costs that have been used in order
to run their company. Such as direct cost, indirect cost, variable costs, fixed costs, mixed costs,
discretionary costs and other costs.
a. Direct Cost
Direct cost is refer to the cost that, for a reasonable cost, can be directly traced to the product.
Direct cost consist of direct material cost and direct labor cost.
Direct material cost is a cost of raw material that is used to make, and can be conveniently
traced, to the finished product. For example, raw material like dairy, palm oil, cocoa, sugar and
water.
Direct labor cost is a cost of salaries, wages and fringe benefits for personnel who work directly
on manufactured products. For example, line worker in producing Dutch Lady milk.
Direct material
RM500,000
Milk : Dairy, palm oil, cocoa, sugar
Direct labor
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Wages and fringe benefits : Line worker
RM720,000
50workers x RM1,200 per month = RM60,000
RM60,000 per month x 12 months = RM720,000
TOTAL RM1,220,000
b. Indirect Cost
Indirect cost is refer to the cost that cannot reasonably be directly traced to the product. Indirect
cost is a manufacturing overhead cost which consist of indirect material, indirect labor and other
indirect cost.
Indirect material is a materials used to support the production process such as packaging like
paper and cupboard.
Indirect labor is a cost of personnel who do not work directly on the product such as maintenance
workers, security guards and supervisory.
Other indirect cost like warehouse rent, depreciation on plant and machinery, insurance, utilities,
selling cost and administrative cost.
Indirect material
Packaging : paper and cupboard
500,000 units production per year x 12 months = 6,000,000 RM9,000,000
units production
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RM6,000,000 production per year x RM1.50 packaging =
RM9,000,000
Indirect labor
Maintenance workers, security guards
5 workers x RM1,000 per month = RM5,000
RM5,000 per month x 12 months = RM60,000 RM168,000
Supervisory
5 worker x RM1,800 per month = RM9,000
RM9,000 per month x 12 months = RM108,000
Other indirect cost
Warehouse rent (RM5,000 x 12 months) RM60,000
Depreciation on plant and machinery RM73,549
Insurance RM260,000
Utilities RM40,000
Selling cost : advertising (RM3,000 x 12 months) and sales RM57,600
commission (RM1,800 x 12 months)
Administrative cost : Salaries of top management and staff and RM650,000
office supplies
TOTAL RM10,309,149
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c. Fixed Cost
Fixed cost refer to the cost that remains the same even when the activity level changes. Fixed
cost consist of direct labor, warehouse rent, insurance, depreciation on plant and machinery,
depreciation on building and depreciation on furniture and equipment, advertising and
administrative cost.
Warehouse rent (RM5,000 x 12 months) RM60,000
Depreciation on plant and machinery RM73,549
Insurance RM260,000
Advertising (RM3,000 x 12 months) RM36,000
Administrative cost : Salaries of top management and staff and RM650,000
office supplies
TOTAL RM1,079,549
d. Variable Cost
Variable cost refer to the cost that change as the quantity of goods or services that a business
produces changes. Variable cost consist of direct materials used in production, sales commission
and utilities.
Direct material RM500,000
Direct labor RM720,000
Sales commissions RM21,600
Utilities RM40,000
TOTAL RM1,281,600
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e. Mixed Cost
Mixed cost is refer to the cost that has both fixed and variable cost.
Fixed cost RM1,079,549
Variable cost RM1,281,600
Mixed cost formula : Y = RM1,079,549 + RM1,281,600x
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6. BREAK-EVEN POINTS
The break-even point is the point in which the volume of activity of the organisation’s revenues
and expenses are equal. In other words, the break-even point is where a company produces the
same amount of both revenues and expenses whether during the manufacturing process or an
accounting period. Thus, when the revenues and expenses are equal, the net income for the
period will be zero. Which means, the company did not lose or gain any money during the
period. The break-even analysis can be represented in two ways which is in equation method or
contribution margin method.
As we know, Dutch Lady consists of various products concerning the customers needs. Dutch
Lady had produced products that was suitable for all type of ages and genders includes for
babies, kids and adults. Some of their products are DL Purefarm, DL Milky, DL Family Milk
Powder, DL with 5x DHA, DL Low Fat Yoghurt, DL Chocolate Drink and DL Milky Star Wars.
For adults, the best product are DL Purefarm and DL Milky. While, for kids, the most suitable
products are Dl with 5x DHA because it contains vitamins that could help with kids growth for a
more healthier and energetic days for them. Besides, as for DL Milky Star Wars, it is a new
products which aim is to attract and encourage the kids in drinking milk because the design of
the bottle is very attractive especially for children.
Therefore, for a company with various products such as Dutch Lady itself, the break-even point
or the target profit points depends on the sales mix. This is because companies with various
products have different selling prices and different variable cost. Sales mix is the proportion of
one product’s sales to total sales. It is analyzed by companies continually because a company
sales mix will directly affects the company’s break-even point.
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CVP ANALYSIS WITH MULTIPLE PRODUCTS
Description Selling Selling Variable Variable Unit Number
Price Price per Cost Cost per Contribu Of Units
(RM) unit (RM) unit tion
(RM) (RM) Margin
DL Purefarm 16, 000, 000 10 350, 000 0.22 9.78 1, 600, 000
DL Milky 14, 000, 000 10 300, 000 0.21 9.79 1, 400, 000
DL Family 23, 400, 000 18 200, 000 0.15 17.85 1, 300, 000
Milk Powder
DL With 5x 8, 200, 000 82 90, 000 0.9 81.1 100, 000
DHA
DL Low Fat 2, 000, 000 25 70, 000 0.88 24.12 80, 000
Yoghurt
DL 9, 300, 000 62 171, 600 1.14 60.86 150, 000
Chocolate
Drink
DL Milky 490, 000 7 100, 000 1.43 5.57 70, 000
Star Wars
Total Sold 73, 390, 000 1, 281, 600 4, 700, 000
Description Number of Unit % of Total
DL Purefarm 1, 600, 000 34.0%
DL Milky 1, 400, 000 29.8%
DL Family Milk Powder 1, 300, 000 27.7%
DL With 5x DHA 100, 000 2.1%
DL Low Fat Yoghurt 80, 000 1.7%
DL Chocolate Drink 150, 000 3.2%
DL Milky Star Wars 70, 000 1.5%
Total Sold 4, 700, 000 100.0%
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Weighted-average unit contribution margin
W eighted contribution = Contribution margin × % of T otal
Description Contribution % of Total Weighted
Margin Contribution
(RM) (RM)
DL Purefarm 9.78 34.0% 3.33
DL Milky 9.79 29.8% 2.97
DL Family Milk 17.85 27.7% 4.94
Powder
DL With 5x DHA 81.1 2.1% 1.70
DL Low Fat Yoghurt 24.12 1.7% 0.41
DL Chocolate Drink 60.86 3.2% 1.95
DL Milky Star Wars 5.57 1.5% 0.08
Weighted-average contribution margin RM 15.38
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Dutch Lady’s Break-even Point
B reak − even point = F ixed expenses ÷ W eighted − average contribution margin
B reak − even point = RM 1, 079, 549.00 ÷ RM 15.38
B reak − even point = 70, 191.74 combined unit sales
Description Breakeven Sales % of Total Individual Sales
(UNIT) (UNIT)
DL Purefarm 70,191.74 34.0% 23, 865.19
DL Milky 70,191.74 29.8% 20, 917.14
DL Family Milk 70,191.74 27.7% 19, 443.11
Powder
DL With 5x DHA 70,191.74 2.1% 1, 474.03
DL Low Fat Yoghurt 70,191.74 1.7% 1, 193.26
DL Chocolate Drink 70,191.74 3.2% 2, 246.14
DL Milky Star Wars 70,191.74 1.5% 1, 052.88
Total Sales 70,191.74
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7. NEW BREAK-EVEN POINT
Fixed cost
Warehouse rent (RM5,000 x 12 months) RM60,000
Depreciation on plant and machinery RM73,549
Insurance RM260,000
Advertising (125% x RM36,000) RM45,000
Administrative cost : Salaries of top management and staff and RM650,000
office supplies
TOTAL RM1,088,549
Variable cost
Direct material RM0.05
Direct labour RM0.10
Sales commissions DL Milky (110% x RM0.6) RM0.07
TOTAL RM0.22
Equation method
Sales = Variable expenses + Fixed expenses + Profits
10Q = 0.22Q + 1,088,549 + 0
Q = 111,304 units of DL Milky
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8. OPERATING LEVERAGE
Operating leverage is the relationship between a company’s fixed and variable cost. Operating
leverage is the use of fixed costs to extract higher percentage changes in profits as sales activity
changes. The greater the degree of operating leverage, the more the changes in sales activity will
affect profits.
Fixed cost RM1,079,549 45.72%
Variable cost RM1,281,600 54.28%
Total RM2,361,149 100%
The degree of operating leverage will be low since the variable cost is higher than the fixed cost.
Therefore, the changes in sales activity will not greatly affect the profit. If the sales increase by
10%, the profit will be magnified by 10 times the operating leverage. It will be the same when
there is a decrease in sales by 10%, the profit will be decrease 10 times the operating leverage.
Operating leverage magnifies profit and losses.
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9. SIMPLE BUDGET
Dutch Lady sells its most popular product which is Dutch Lady PureFarm on account towards
wholesale company. Dutch Lady has the following collection experience for its sales on account:
Percent paid in the month of sale 20%
Percent paid in the month after the sale 60%
Percent paid in the second month after the sale 15%
To encourage payment in the month of sale by customers, Dutch Lady gives a 2% cash discount.
Dutch Lady also receives other monthly income of RM30,000. Dutch Lady anticipated sales for
the next few months are:
January RM420,000
February RM430,000
March RM410,000
April RM450,000
Dutch Lady expected purchases are RM120,000, RM150,000, RM120,000 and RM115,000
respectively for the months January, February, March and April. 50% are paid in cash while the
remainder s paid in the following month.
Dutch Lady’s monthly rent is RM5,000 chargeable every month. Wages and salaries are paid
monthly. The beginning cash of January is RM120,000 and a minimum of RM20,000 should be
kept.
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January (RM) February (RM) March (RM) April (RM)
Budgeted sales 420,000 430,000 410,000 450,000
Cash Sales (20%) 84,000 86,000 82,000 90,000
- Cash (1680) (1720) (1640) (1800)
discount
(2%)
Collections: 60% 252,000 258,000 246,000
15% 63,000 64,500
Other income 50,000 50,000 50,000 50,000
Total cash receipts 112,340 366,300 431,380 428,720
January (RM) February (RM) March (RM) April (RM)
Purchases 120,000 150,000 120,000 115,000
Cash purchases 60,000 75,000 60,000 57,500
(50%)
Payment (50%) 60,000 75,000 60,000
Rent 5,000 5,000 5,000 5,000
Wages and salaries 114,167 114,167 114,167 114,167
Total cash 299,167 404,167 254,167 236,667
disbursement
Net cash flow (186,827) (37,867) 177,213 192,053
+ Beginning 120,000 66,827 28,460 205,673
cash
Ending cash 66,827 28,460 205,673 397,726
- Minimum 20,000 20,000 20,000 20,000
cash
balance
Excess cash 48,827 8,460 185,673 377,726
balance
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10. RELEVANT REVENUES AND COSTS IN DECISION MAKING
Dutch Lady had always improving the outer look of its products and trying to make it easy for
the consumer to enjoy the products. The operation manager was approached by a packaging
company with an offer to supply the Dutch Lady Purefarm UHT 1 Litre packaging at a price of
RM 1.30 each.
MAKE OR BUY
Dutch Lady current cost for the Dutch Lady UHT 1 Litre packaging
ELEMENT RM
Variable cost:
Direct material 0.06
Direct labor 0.02
Sale commission 0.02
Utilities 0.04
Fixed cost:
Warehouse rent 0.04
Depreciation on plant and machinery 0.07
Insurance 0.03
Advertising 0.02
Administrative cos 0.04
Total cost per box 0.34
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ELEMENT COST PER BOX COSTS SAVE BY
PURCHASING
THE BOX
(RM) (RM)
Variable cost:
Direct material 0.06 0.06
Direct labor 0.02 0.02
Sale commission 0.02 0.02
Utilities 0.04 0.04
Fixed cost:
Warehouse rent 0.04 0.01
Depreciation on plant and machinery 0.07 0.00
Insurance 0.03 0.01
Advertising 0.02 0.01
Administrative cos 0.04 0.02
Total cost per box 0.34 0.19
Cost of purchasing boxes (per box) 1.30
Loss per box if the box are purchase (RM
0.19 - RM 1.30) (1.11)
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From the figure above, it shows that if Dutch Lady purchases the box for RM 1.30, it will only
save RM 0.19. Thus, Dutch Lady will have a loss of RM 1.11 per box purchased. Therefore,
Dutch Lady rejected the offer.
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REFERENCES
UK Essays. (2018). Food Product Analysis : Dutch Lady Full Cream Milk. Retrieved from
https://www.ukessays.com/essays/sciences/food-product-analysis-dutch-lady-cream-2575.php
Dutch Lady. (2017) Annual Report 2017. Retrieved from
http://disclosure.bursamalaysia.com/FileAccess/apbursaweb/download?id=185186&name=EA_
DS_ATTACHMENTS
Lumen Learning. (2019) Thinking about operating leverage. Retrieved from
https://courses.lumenlearning.com/boundless-finance/chapter/thinking-about-operating-leverage/
Dutch Lady. (n.d.). Retrieved from https://www.dutchlady.com.my/
Dutch Lady Milk Industries Berhad. (2019, January 31). Retrieved from
https://en.wikipedia.org/wiki/Dutch_Lady_Milk_Industries_Berhad
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