Universiti Malaysia Sabah Sekolah Perniagaan dan Ekonomi

Group Assignment Cover Sheet CASE STUDY

Course Group No Company Name Due Date Submission Date

: Managerial Accounting (BT21903) : 62 : Panasonic Manufacturing Malaysia Berhad : 7 APRIL 2011 : 7 APRIL 2011

We, the undersigned, hereby confirm that the work contained in this assignment is solely our own, except for reliance on material that is identified and cited according to accepted academic practice. No 1 2 3 Name NORILAH BINTI RAMLI PADRIN KINDON SUKAINAH FARHAH BINTI ADOR WELLEY JIKUP Matric No BB09160567 BB09110223 BB09110248 Signature

BB09110228

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1.0 EXECUITIVE SUMMARY OF PANSONIC MANUFACTURING BERHAD

BOARD OF DIRECTORS Tan Sri Datuk Asmat bin Kamaludin (Chairman) Masahiko Yamaguchi (Managing Director) Raja Dato Seri Abdul Aziz bin Raja Salim Dr. Ramanaidu a/l Semenchalam Soh Beng Kuan Chen Ah Huat Razman Hafidz bin Abu Zarim Nobuyuki Kochi Datuk Supperamaniam a/l Manickam Lee Wee Leong Toshihiro Ukita AUDIT COMMITTEE Raja Dato Seri Abdul Aziz bin Raja Salim (Chairman) (Independent Non-Executive Director) Razman Hafidz bin Abu Zarim (Independent Non-Executive Director) Datuk Supperamaniam a/l Manickam (Independent Non-Executive Director) REMUNERATION COMMITTEE Raja Dato Seri Abdul Aziz bin Raja Salim (Chairman) (Independent Non-Executive Director) Razman Hafidz bin Abu Zarim (Independent Non-Executive Director) Nobuyuki Kochi (Executive Director) NOMINATION COMMITTEE Raja Dato Seri Abdul Aziz bin Raja Salim (Chairman) (Independent Non-Executive Director) Razman Hafidz bin Abu Zarim (Independent Non-Executive Director) Lee Wee Leong (Non-Independent NonExecutive Director) AUDITORS Jaffar Hussein & Co. PANASONIC Chartered Accountants Kuala Lumpur

Business Description: Company Name Abbr. Established Official opening Listed in the KLSE Financial Review : Panasonic Manufacturing Malaysia Berhad : PMMA : 3 september 1965 : 11 May 1967 : 14 December 1966 :

For the financial year ended 31 March 2010, the Companys revenue of RM679.8 million increased by RM78.9 million or 13.1% compared with RM600.9 million recorded in the previous financial year. The Company achieved better operational results this financial year, recording a combined profit before taxation for the financial year ended 31 March 2010 of RM79.3 million, which was higher by 30.4% or RM18.5 million compared to the combined profit before taxation of RM60.8 million reported in the previous financial year. Managerial accounting practise: PAMANY used a standard costing, Job-order costing, weighted average and perpetual inventory method provides a company with the capability of maintaining continuous records of the quantities of inventory and cost flowing through the inventory accounts. This company also showed an effectiveness pricing strategy in a way try to reduce the cost of production and increases the quality of product to and became the best brand for customers. Its also showed a great financial analysis better than its competitor.

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2.0 COMPANY BACKGROUND: Panasonic Manufacturing Malaysia Berhad engages in the manufacture and sale of electrical home appliances, batteries, and related components. It has operations in Malaysia, Japan, Asia, Middle East, and internationally. The company was formerly known Matsushita Electric Company (Malaysia) Berhad and changed its name to Panasonic Manufacturing Malaysia Berhad in 2005. Panasonic Manufacturing Malaysia Berhad was founded in 1965 and is based in Shah Alam, Malaysia. In Human resources and human capital approaches the Company had appointed an additional 14 young and dynamic Group Managers and Team Leaders within 2 years. This new appointment will enhance the organizational vitality and also to expedite self-realization of individual capabilities. In 2009, the Company participated in the Employees Opinion Survey where employees expressed and identified the weaknesses of the organization and this will allow the Management to make improvement thus making the organization stronger. In addition, this compny showed a great achievement and accomplishement. The Company was awarded the Clean Factory Award 2009 by Panasonic Corporation, Japan Head Office acknowledging the Companys outstanding achievement and continued efforts in environment impact reduction, the Company also was honoured to receive the StarBiz ICR Malaysia Corporate Responsibility Awards 2009 among the 20 finalists of public listed companies, the Company had been awarded the prestigious Malaysia Good Design Mark by Malaysia Design Council for various product categories. This year, company new products were accredited with Good Design Mark. Panasonic brand is ranked the No. 1 brand in Malaysia by GfK Group which is one of the largest market research companies in the world, for the certain Companys products. The Company has also received the GfK Award for Home Shower No. 1 Market Share in Thailand. These GfK Awards represent an endorsement on the sales achievement in 2009 as well as Panasonic reputation and brand image.

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3.0 Management accounting practice that PANAMY used. In the Panasonic manufacture use the managerial accounting which concerned with providing information to manager to help the people inside an organization who direct and control its operations. In the Panasonic manufacture also has a cost accounting system requires five parts that include, firstly is an input measurement basis, and second is an inventory valuation method. Third is a cost accumulation method, then a cost flow assumption and lastly is a capability of recording inventory cost flows at certain intervals. The first part is an input measurement which has three alternatives including it is pure historical Costing, Normal historical costing and standard costing. Among this three alternative the Panasonic manufacture more give focuses with a standard costing in produce they product. The standard costing is an estimated cost which determines in advance what each product or service should cost under the given circumstances. It is a bench mark for the cost of a product, process or component. It is also called planned cost or predicts cost or predetermined cost. Why the Panasonic use this standard costing? The Panasonic use a standard costing because it is can use as a basis for comparison and control, facilitate management by exception whereby a manager would only intervenue if the operation are not progressing as expected or deviation are observed, performance evaluation through variance analysis, provides motivation to employees as standard are achievable with reasonable effort and also standard costing also eliminate inefficiencies. But sometime, has company not like use this system because it is primary focus has been direct labor which is shrinking, requires a stable process to be cost effective, shorter product life makes standard out-dated soon, it leads to cost minimization rather than value maximization, and also it is tend to be small or nonexistent in automatic production process.

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Second part of a cost accounting system is cost accumulation method which has four alternatives it is job-order, Process, Backflush and Hybrid. The Panasonic manufacture use the Job-order which means the system accumulates cost by jobs. It may be for one unit like a custom-made luxury boat or a dozen boats of the same design termed as a batch. Each job or each batch is unique. If not, it is better to use process costing. The job-costing have four type cost such as cost flow, cost labor, material cost, and manufacturing overheads. Why the Panasonic manufacture use this job-costing? This is can explain where job-costing available to used in situations where many different products are produced each period. The other reason, Panasonic manufacture use job-costing it is large-scale and it is also used extensively in service industries. Next part of a cost accounting system is cost flow assumption where has three types it is specific identification, FIFO, and weighted average. Among this three types cost flow assumption the Panasonic manufacture more like to use the weighted average. The weighted average method blends together units and costs from the current period with units and cost from the prior period. The Panasonic manufacture uses this method because this method makes no distinction between work done in the prior period and work done in the current period. About the weighted average method also is when a manufacture use this method the beginning inventory units lose theirs separate identify because they are lumped together with the units of product started during the period. Continually, other part of cost accounting is recording interval capability which has two types it is perpetual method and periodic method. Between these two methods, Panasonic manufacture uses the perpetual inventory method. Conceptually, the perpetual inventory method provides a company with the capability of maintaining continuous records of the quantities of inventory and cost flowing through the inventory accounts.

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4.0 Comparison PANAMY with Sony Corporation on the firms operating activities and financial performance. Panasonic Manufacturing Malaysia Berhad 2010 Sony Corporation 2010

Accounts receivable turnover ratio =

 

Accounts receivable turnover ratio =

 



= 13.92 times



= 7.24 times

This showed that Sony is better measured by number of lines its account receivable turnover collected during the year than the Panasonic Manufacturing Berhad. Sonys company 7.24 times per year on it account receivable turnover compared 13.92 times per year for Panasonic Manufacturing Berhad.

Inventory turnover ratio =

   

Inventory turnover ratio =

  

=33.36 times

=7.58 times

Panasonic manufacturing Berhad is clearly excellent in its management of inventory, turning its inventory over 33.36 times per year compared 7.58 times per year for Sony Corporation. In other word, PANAMY sells its inventory in 10.94 days only on average (365days/33.36times), and the competitor take 48.15 days (365days/7.58times).

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Panasonic Manufacturing Malaysia Berhad 2010

Sony Corporation 2010

Operating income return on investment =

 

Operating income return on investment =

 

= 12%

= 0.48 %

Hence, we see that PANAMY is earning over the return on investment of the Sony Corporation. Management is generating significantly more income on $1 of assets than similar firms. 12% compared 0.48% for the competitor.

Operating profit margin = 

 

Operating profit margin =

 

 

= 11.29%



 

= 0.86 %

Operating profit margin ratio analysis measures a companys operating efficiency and pricing efficiency with its successful cost controlling. The higher the ratio, the better a company is. A higher operating profit margin means that a company has lower fixed cost and a better gross margin or increasing sales faster than costs, which gives management more flexibility in determining prices. It also provides useful information for investors to determine the quality of a

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company when looking at the trend in operating margin over time and to compare with competitor. This showed that PANAMY is greater than its competitor, where is operating profit margin of PANAMY is 11.29% and 0.86% for Sony Corporation.

Total assets turnover =

 

Total assets turnover =

 

= 1.06 times

= 0.56 times

Asset turnover ratios help to measure the effectiveness with which the company management uses its assets to generate sales or revenue. These ratios help to measure the productivity of a company's assets. A high asset turnover ratio is desirable as compared to a low ratio since the former is indicative of better operating performance. A higher asset turnover ratio symbolizes greater shareholder wealth. Total assets include current assets, fixed assets and intangible assets such as licenses and goodwill. Fixed assets entail huge initial investments that are undertaken with the hope of maximizing revenue. Hence, the fixed-asset turnover ratio is a better measure of operating performance as compared to the total asset turnover ratio. In addition, PANAMY is more better then its competitor on total asset turnover of 1.06 times and its competitor 0.56 times only in generate its turnover ratio.

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Fixed assets turnover = =

  

Fixed assets turnover =

 

= 8.66 times

= 7.16 times

Fixed asset turnover measures how well a company is using its fixed assets to generate revenues. The higher the fixed asset turnover ratio, the more effective the company's investments in fixed assets have become. A high ratio indicates that a company spent less money in fixed assets for each dollar of sales revenue. A declining ratio indicates that a company has over-invested in fixed assets. Fixed asset turnover provides very useful information for both investors and management about whether or not a company is becoming more efficient in the use of its fixed assets by comparing its value with its historical records or industry average. PANAMY fixed asset ratio is greater than Sony Corporation.

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5.0 Companies analyzing cost structure (ex. variable cost vs. fixed cost, manufacturing vs. non-manufacturing cost, direct vs. indirect cost and job costing/ process costing) and its effect on its pricing strategy and sales. 5.1 Cost structure From the Income Statement of Panasonic Manufacturing, we find that this company using variable cost for their manufacturing activities. Variable Cost can best define as a cost whose total dollar amount varies in direct proportion to changes in the activity level. Example of variable cost from income statement that use by Panasonic Manufacturing is Cost of sales. In 2010, the Cost of sales is RM546, 131 compare to the previous year RM511, 069. It shows that the variable cost increase 6.9% in 2010 due to the demand of the product and services is higher among customer satisfaction. In addition, in 2008 the value for variable cost is RM482, 838 much higher in 2007 measure cost for RM470, 158. Besides that, this company use non-manufacturing cost for their cost structure such as distribution and marketing costs, administrative expenses, and other operating expenses. These non-manufacturing costs are those cost that are not incurred to manufacture a product. In 2010, the sum of non-manufacturing cost is RM75, 145 compare to the previous year RM54, 596. It also follows by 2008 and 2007 that each of the value is RM50, 234 and RM45, 180. This manufacturing cost includes two types of costs such as selling cost and administrative costs. In addition, Manufacturing Cost is the business activity involves converting the raw materials into finished products, which will be sold to the customers. Direct cost can define as can be traced to a particular cost object such as cost of raw materials to manufacture a product or the cost of the wages of the factory works that make

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the product. As mention, Panasonic Manufacturing use this cost structure to evaluate their own product directly to their customer. Moreover, Panasonic Manufacturing Company uses Job-order Costing System or to make many of their different products that produce for each period. Their products are manufactured to order. Each order requires tracing and allocating costs to each and maintaining cost records for each job such as Panasonic use video monitoring. Job-order costing can be divided into three types such as direct materials, direct labor and manufacturing overhead. For example, in 2010, the raw materials include the inventories that measure RM16, 373. Panasonic also manage their product costing system as Process Costing. It shows, Panasonic produces many units of single product. One unit of product is distinguishable from other units of product. The identical nature of each unit of product enables the same average cost per unit. 5.2 Effect of cost structure on its Pricing Strategy and Sales Panasonic Manufacturing Malaysia (PMMA) is a manufacturing company that sells electrical home appliances and it is include manufactures kitchen and life appliances. To compete among competitors especially Sony Manufacturing Company, Panasonic use their own variable cost such as cost of sales by looking at notebook PC unit of Panasonic as part of their strategy as a target channel sales of their product. This can cause their pricing strategy more effective by selling their product line in the SMB market (Small to Medium Market) through their distributors such as Tech Data, Synnex, Information Technologies, Ingram Micro and D&H Distributing. This shows that pricing strategy is the important part for product positioning in the market place.

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Through Process Costing, Panasonic Manufacturing Company fierce to face competition among competitor, the company cannot raise their product price. For example, the market share leader in plasma TVs. So, the company has to reduce the costs and increasing their production sales to improve profit margin. To solve the problem, Panasonic gain their product by setting up their goal through deliver the product to retail partners, For example do e-commerce system direct to the customers. However, the company also promotes their product to retailer by doing Best Buy and Circuit City. Through this method, Panasonic Company will decrease their cost and reduce the vendors inventory. The Company had transformed and improved in many areas during the last financial year. The Management has implemented many new innovative changes in the manufacturing processes, information technology innovations, human resources system together with stringent cost reduction activities and prudent fund management to achieve its business targets. With the application of flexible manufacturing concept to meet market demand, the Company had increased the assembly block cells which enable simultaneous production of different product models. It has improved daily production capacity and helped to reduce product model changing time. With this flexibility, the Company was able to run the production with minimum manpower without incurring unnecessary loss cost during the nonseasonal or low-sales period. The Company continued to monitor and manage inventory levels closely. For the management of finished goods inventory, the Company increased flexibility in production and manpower planning to meet as much as possible the sales and delivery plan. In the case of raw material inventory, the Company implemented a few activities which contributed to the reduction in inventory levels. Amongst the activities implemented was the drive to increase the number of suppliers under the Vendor Managed Inventory program

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where the suppliers consigned their goods to our factory location and arrangement of shipment consolidation to designated hubs in a few overseas destinations was made to maximize delivery load per container. It reduced logistic costs and at the same time improved logistic arrangement that led to a lower inventory level. The Company was able to achieve significant cost reduction during the financial year. Even though the easing of raw material prices contributed partially to the achievement, the Companys efforts especially in the concentration of cost reduction from engineering change process during new model development stage played a pivotal role in reducing material costs. Continuous efforts were made to replace imported or expensive raw materials to local or common type and re-sourcing of suppliers for key parts were carried out throughout the year. In order to strengthen product competitiveness, the Company with the manpower of approximately 80 research and development engineers, managed to develop a total of 140 new product models that match customer lifestyles. Out of this, 27 product models were full model change. In the development stage, almost 100% new product models had achieved the scheduled delivery dates as well as costing target. At the same time, with the strengthened development capability, the Company was able to support new product development and provide technical support for Panasonic factory in India. For the financial year under review, the Company launched 2 new products, namely Bidet and Dish Dryer into the domestic market as well as introduced several new Vacuum Cleaner, Home Shower, Blender and Ceiling Fan models with new or enhanced features to domestic and export markets. In addition, the Company had also embarked on the transfer project for the transfer of manufacture and sale of Food Processor and Juicer export models from Japan to Malaysia. The production activities were strongly supported by aggressive marketing activities. To secure consistent sales growth, the Company will continue to collaborate with local and overseas marketing arms to strengthen its presence in both the domestic and export markets.

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In March 2010, the Equator Volume Zone project was launched; which was a collaboration project between Panasonic companies in Asia and Oceania region, the Middle East, Africa and Latin America to spread the horizontal expansion of volume zone products in the equatorial belt zone. In pursuit of eco-manufacturing objectives, CO2 emission reduction has become a very important subject in Panasonic worldwide. For the financial year under review, the Company managed to achieve approximately 1,000 ton CO2 emission reduction through various activities, to name a few, installation of reactive power energy saver for all heavy machines, installation of inverters to machineries, change to high frequency light, installation of e-clean power line saving and room temperature control. We have also invited a few specialists from Japan to help us study ways to further enhance the CO2 emission reduction activities.

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