UNIVERSITI TEKNOLOGI MARA JOHOR BRANCH

SEGAMAT CAMPUS

MAF551 MANAGEMENT ACCOUNTING AND CONTROL

CASE STUDY: MARVEL GETAWAYS SDN BHD

SEMESTER: MARCH - AUGUST 2021

GROUP: JAC2203C

PREPARED BY:

NAME MATRIC ID

1. NUR ANIS NADHIRAH BINTI AZIS 2021120235

2. NURUL IZZAH BINTI RASULLAH 2021114071

3. NUR SYUHADA BINTI SULAIMAN 2021101877

4. NURUL SAFIA SAFIRA BINTI NURULZAMAN 2021120163

PREPARED FOR: MADAM NORFIZAH OTHMAN

SUBMISSION DATE: 20th JULY 2021

QUESTION 1

From: Syufia Izzanis

Sent: 4th January 2022
Subject: Performance report for the year ended 2021

Dear Miss Farra Amber,

Good day!
Here’s the evaluation of the company’s overall performance for the year ended 31
December 2021 using the feedforward concept.

➢ According to the performance report for the year ended 31 December 2021, it can be seen
that the overall performance of Marvel Getaways Sdn Bhd is satisfied because it achieved
the target net profit with a difference of 38,119 (F).
➢ Most of the variances are favorable, the most significant favorable variance was from sales
revenue 124,700 (F). This may be due to the company setting a high price for their products
and services to the customer as it will give the perception to the customer about our quality
services. Other than that, the company’s gross profit showed a favorable result as the sales
revenue was high. The cost variances showed a favorable result was selling expenses which
is 2,427 (F). It may be due to the marketing and selling activities incurred a lower cost as
it mainly used online marketing strategies. It indicates that this management is successful
in managing and controlling its cost.
➢ Although, there were adverse variances from other expenses which are cost of sales and
administrative expenses. Administrative expenses showed an adverse 54,260 (A) which
may be due to this management incurred a higher cost in administration such as staff wages
and salaries. While cost of sales shows an adverse may be due to the rising price for
suppliers.

A flexible budget is a budget which is designed to adjust the permitted cost to suit the level
of activity actually attained by analyzing the cost behavior while static budget remains unchanged
whether the sales and production is increased or decreased. Hence, there are advantages of using
a flexible budgetary control system over the static budget. First advantage is it provides better cost
controls as a flexible budget can react quickly towards adverse conditions. For example, if the
sales showed a decline, the cost can be reduced. Next advantage is always updated with the current
data because the cost incurred by the company may be changed due to different circumstances
such as weather, economics and others. Other than that, company also can commit to the potential
outcomes. As the company’s sales are drastically increased, the flexible budget also can increase
the advertising or marketing cost to increase sales. Last advantage is that a flexible budget can
change the cost and margins. It is due to the flexible budget computed the company’s production
based on sales, hence, the company can determine the best profit margin that will help to evaluate
whether it is effective if we keep producing them

As for the budgeting techniques that you have requested, one of the types of budgeting
techniques is incremental budgeting. Incremental budgeting is a traditional approach of budgeting
where the previous year’s budget will be taken as a base and when preparing the budget, the budget
holder will add a certain percentage to allow for the changes in costs or revenue. There may also
be other adjustments for specific items to be made in the current budget. However, there are
advantages and disadvantages using this type of budgeting. The first advantage is the simplicity.
This budgeting is the simplest budgeting method because it does not necessitate complicated
estimates since it forecasts the future budget using the present period’s budget. In comparison, the
budgeting approach only needs a few assumptions. Finally, the method’s efficiency saves time for
the company’s executives during the budgeting period. Next advantage is the consistency and
operational stability where the dependence on the figures from the budgets of previous periods
ensures that the budgets remain fairly consistent and relatively stable over time. As for the
disadvantages, this type of budgeting has a behavioral problem which is budgetary slack where we
will tend to underestimate the revenue and overestimate expenses into incremental budgets, so that
Marvel Getaways Sdn Bhd will always have favorable variances. The other disadvantage is it will
lead to extra spending as it tends to make us spend more as budgets may be easily available and
may lead to unnecessary spending of funds which may not be warranted.

Other than that, another type of budgeting technique is activity-based budgeting (ABB).
ABB is a method of budgeting that correlates with activity-based costing after apportioning
overheads to the activities and later to the products. ABB refers to the budgeted statement of
proposed activities for the future, by incorporating expected or budgeted costs and revenue. The
direct cost could be easily prepared for production cost as it varies with production while indirect
cost will be analyzed to be prepared for production cost. The advantages of this technique are the
evaluation. Activity based budgeting method evaluates each and every cost driver. It takes into
consideration all the steps involved in an activity. Only the necessary activities form a part of our
business while irrelevant will be eliminated. Besides, ABB also has competitive edges. The ABB
system eliminates all sorts of unnecessary activities, which helps our business to save its costs.
The saved cost results in the production of goods and services at lower cost than that of
competitors. This also helps us to gain a competitive edge in the market. As for the disadvantages
of this technique, it is costly and we need to have a deep understanding of the business processes.
The system is costly and needs skilled persons to prepare the budget. Marvel Getaways Sdn Bhd
may need to speed extra money to hire a person in charge to do so. We as an accountant need to
have a deep understanding of the business processes. This can be difficult, especially our
businesses that face complex production cycles. Our company needs to decide if increased
forecasting accuracy is worth the extra investment needed to implement an ABB system.

Lastly, thank you for reaching me regarding this matter. I hope the information that I
provide to you will be useful for the meeting. All the best for your upcoming meeting this
Thursday. Please let me know if you have any other information or favor to ask. Not to forget that
I already provide the details about the company’s Performance Report for the year 2021. Please
refer to the attachment below. Thank you.

Attachment:

MARVEL GETAWAYS PERFORMANCE REPORT

FOR THE YEAR ENDED 31 DECEMBER 2021

Sincerely,

MISS SYUFIA IZZANIS

Management Accountant
Attachment:

Marvel Getaways Sdn Bhd

Performance Report for the year ended 31 December 2021

Flexible Budget Actual Variance

(RM) (RM) (RM)

Sales revenue 431,800 556,500 124,700 (F)

Less: cost of sales (84,456) (111,300) 26,844 (A)

Gross profit 347,344 445,200 97,856 (F)

Selling expenses (29,590) (27,163) 2,427 (F)

Administrative (205,000) (259,260) 54,260 (A)

expenses

Finance cost (5,000) (5,000) 0

Profit before tax 107,754 153,777 46,023 (F)

Taxation (18,318) (26,142) 7,824 (A)

Profit for the year 89,436 127,635 38,119 (F)

Working:

1) Sales revenue: 218,300 + 130,300 + 83,200 = 431,800

2) Cost of sales: 38,600 + 39200 + 6,656 = 84,456
- Ticket sales: 13,900 + 13,400 + 11,300 = 38,600
- Tour package: 14,300 + 13,100 + 11,800 = 39,200
- Hotel accommodation: 8% x 83,200 = 6,656
3) Selling expenses: 21,590 + 8,000 = 29,590
- Variable selling: 5% x 431,800 = 21,590
- Fixed selling = 8,000
4) Administrative Expenses = rental + depreciation of vehicles + wages and salaries +
depreciation of office equipment + general administrative expense
= 10,000 + 25,500 + 144,600 + 10,500 + 14,400
= 205,000
QUESTION 2

From: Miss Syufia Izzanis

Sent: 15th January 2022

Subject: Analysis on tour package

Dear Miss Farra Amber,

Based on the statement above and the information discussed by the management team
with regards to dropping the said tour package, there is an attachment of the comparative
Statement of Profit or Loss to show the effect on a company's profitability for the details.

Based on the attachment, Marvel Getaways should not drop the group tour. This is
because if the company drops the group tour package, the net profit of the company is
RM15,000 which decreases the amount of net profit of RM5,000 from the old net profit of
RM20,000. They will incur more losses which is RM13,000 from the group tour. However,
even though the company did not drop the tour package, the company still incurred losses of
RM8,000 but the amount of losses is better than if the company dropped the tour package.
Thus, Marvel Getaways should continue the group tour.

The two qualitative factors to be considered when the company is considering dropping
the tour package are to consider the welfare of the employees that may have to be made
redundant due to the discharge if the tour packages are dropped. These employees will have
difficulties finding new jobs during the pandemic. Next, the relationship between suppliers that
should be able to provide continuous supply to the Marvel Getaways Sdn Bhd. Due to the
pandemic season which caused business travel to be delayed, the company had to let go their
suppliers which are airlines, train companies, hotel chains and other travel agencies because
there is no customer demand and it might affect the business.

Last but not least, I hope the Comparative Statement of Profit or Loss that I already
attached here and the explanation on qualitative factors of the tour package will help you to
make the best decision on whether to eliminate or continue the tour package as it appears to be
losses and unprofitable.
Attachment:

MARVEL GETAWAYS COMPARATIVE STATEMENT OF

PROFIT OR LOSS FOR THE YEAR ENDED 2021

Sincerely,

MISS SYUFIA IZZANIS

Management Accountant
Attachment:

Marvel Getaways Sdn Bhd

Comparative Statement of Profit or Loss for the year ended 2021

Keep the Drop the Differences: Net Income
Group Tour Group Tour (Increase/Decrease)

RM RM RM

Sales 50,000 0 50,000 decrease

Variable costs (30,000) 0 30,000 decrease

Contribution margin 20,000 0 20,000 decrease

Fixed costs:

Salaries 8,000 0 8,000 decrease

Advertising 6,500 0 6,500 decrease

Utilities 1,000 1,000 0

Depreciation-office 2,000 2,000 0

equipment

Depreciation- motor 4,000 4,000 0

vehicle

Insurance 500 0 500 decrease

General administrative 6,000 6,000 0

Total fixed costs 28,000 13,000 15,000 decrease

Net operating (8,000) (13,000) (5,000)

profit/(loss)
New Net Profit = RM16,000 + RM12,000 - RM13,000
= RM15,000

Old Net Profit RM20,000

New Net profit RM15,000

Decrease in Net Profit RM5,000

QUESTION 3

From: Miss Syufia Izzanis

Sent: 15th January 2022
Subject: Information on pricing strategies

Dear Miss Farra Amber,

Good day for you too!

Commonly there are five pricing strategies that Marvel Gateways can use to determine
the price of the virtual tourism package. For the first pricing strategy, they can use Premium
Pricing. Premium pricing is a strategy that involves setting a high price to the product launch
by a company. The products may be different in terms of quality, durability, after-sales service
or warranties. The goal is to create the perception that the products must have higher value than
competing products because the prices are higher. By adopting premium pricing, it will
naturally result in higher profit margins for Marvel Gateways if it was successful. They also
can improve brand value and the perception of their company. Other’s competitor also would
not be able to compete with their product because most customers evaluate the quality of a
product based on its price. If Marvel Gateways choose this premium pricing strategy, their
ability to sell the virtual tourism package to the market will be limited because for a business
to seek strong sales growth while maintaining its price premium will be difficult since the
demands would be lower.

Next, for the second pricing strategy is Penetration Pricing. Penetration Pricing is a
pricing strategy that involves setting prices as low as possible for goods or services to obtain
rapid acceptance and sufficient penetration into the market. If a company obtains sufficient
sales volume through this pricing strategy, it can become the de facto industry standard, which
makes it easier to defend its position in the market. By adopting penetration pricing, Marvel
Gateways can reduce competition among their competitors because of the lower price in the
same market. With this approach, it is possible to reach a position in the market, even though
the penetration pricing may need to be maintained for a long time in order to drive away a huge
number of competitors. If Marvel Gateways decide to choose this penetration pricing strategy,
they will get lower profit since the package they sell is set at a lower price. Other than that,
they also can lose their customers if they do not improve their services and just only focus on
the pricing strategy only because customers still want the best quality from them.

Moreover, Marvel Gateways can use Market Skimming Pricing. Market Skimming is a
pricing strategy that involves charging high pricing when a product is first released and
dropping prices as the product evolves through the product life cycle. Skimming is an effective
pricing approach for companies in diverse communities where demand for early-adoption is
extremely high. It was commonly used in technology businesses. By adopting these pricing
strategies, Marvel Gateways will get higher return on investment for the virtual tourism
package because it was a first launch service and they also can cover all the cost incurred during
the research and development. Other than that, they also can help companies to create and
maintain the company’s brand images where the virtual reality is high quality and can make
customers satisfied when using it. If Marvel Gateways decide to choose this market skimming
pricing strategy, they must dare to take risks because it only works if the demand curve for the
company’s product is inelastic. Other than that, customers would never buy newly launched
products or services if the company has a history of price skimming. They would rather wait
for a few months and then purchase the products or services at a low cost.

Other than that, Differential Pricing also is a pricing strategy that is set based on product
type, market segment, place or time. Differential pricing enables companies to get profit from
their customers' unique valuations by offering different customers at different prices for the
same product. By adopting these pricing strategies, if Marvel Gateways techniques such as
coupons, promotions, or rebates are implemented, the initial discount allows new buyers to test
the services. If consumers like what they are experiencing, they may continue to buy the
tourism packages at regular price when the discount expires. If Marvel Gateways decide to
choose this market skimming pricing strategies, they might be losing their customers who
cannot afford to pay at full price because they are used to pay at discounted price. Other than
that, profits earned from discounted sales will be reduced because the company would not
receive the full amount generally charged.

Last but not least, the fifth common pricing strategy that can be used is Loss Leader.
Loss Leader is a pricing strategy involving selling a product or service at a loss in order to
attract new customers or offer further items and services to those customers. Loss leader pricing
is aimed toward stimulating other sales of more profitable goods. By adopting these pricing
strategies, it can help Marvel Gateways to attract new customers because it sells at lower prices
but they need to have additional services so that they can cover all their costs. Other than that,
it also can help the company to promote other services which they offer to customers. If Marvel
Gateways decide to choose this loss leader pricing strategy, they need to take risk in making a
loss if they cannot attract new customers or stimulate sales of full-priced packages and
automatically it will reduce the sales margin. Furthermore, Marvel Gateways also have to face
the customer expectations in quality because if the price is too low customers will think that
the package is not interesting there’s no benefit for them to join.

Considering the current economic conditions, I would like to suggest Marvel Getaways
to use Market Skimming Pricing Strategy because virtual reality (VR) is the first launch
services by the company. Since the new services were created during the pandemic, there will
be the least number of competitors in the travel and tourism industries in Malaysia. Due to this
pandemic, the company has incurred a lot of expenses, therefore they adopt this pricing strategy
to gain profits early in the product’s life as the company needs to recover all the cost incurred
since they are one of the companies that are affected. Since the pandemic has been going on
for a very long period which make some people felt like they have been staying at home for
years due to Movement Control Order (MCO), the chances for them to participate in the
journey of travelling across the world virtually would be high depends on customer’s
willingness to pay higher price for the services. Later, if the Marvel Gateways want to develop
new services, the price of virtual reality (VR) will be lower and it will be easy to obtain rapid
acceptance of customers into the market.

The implications when management of Marvel Productions Sdn Bhd and Marvel
Getaways Sdn Bhd use the cost-based approaches which is marginal cost and full cost-plus
mark-up for transfer pricing. For the marginal cost, it will not cover the fixed cost, thus Marvel
Getaways Sdn Bhd will pay a lower price compared to the market price. As a buying division,
Marvel Getaways Sdn Bhd would get higher profit from this internal transfer. The supplying
division which is Marvel Production Sdn Bhd may appear to the central management as
inefficient which will affect manager’s performance. Thus, it is not preferable to Marvel
Production Sdn Bhd to use this approach because this approach will give benefit to Marvel
Getaways Sdn Bhd only.

When using full cost-plus mark-up, this transfer price enables the supplying Division
which is Marvel Production Sdn Bhd to earn a profit on inter-divisional transfer of goods and
services. This transfer price also benefits Marvel Getaways Sdn Bhd as the transfer price is still
lower than the normal market price of goods sold in the open market.

Sincerely,

MISS SYUFIA IZZANIS

Management Accountant