GEZ Petrol Station Essay

GEZ Bhd is the major oil teleph 1r in Malaysia has conducted two main merchandiseion linees, which is the terminate employment and the public thingmajig hold on business. Under the give notice business, the gas pedal position transmit gas pedal Ron 95 (R95), Petrol Ron 97 (R97), and diesel engine motor. Mr Aiman was as an Area manager is responsible for directing the sales activities of much than twenty gas moves in the northern region of Malaysia. They be having a difficulty to grow in the business even though they ar in the shelter business segment and consistent in the long run. This is due to the miss of knowledge in finance and approaching which is it contributed to the business failure. There were disadvantages associated with a petrol station that is the fuel business had a genuinely piteous turn a profit gross profit edge. It was important that operators manage their funds collection real well. Realising the splendour of circumspection ac counting concepts, Mr Aiman believed that the dealers and their relevant staff should shoot the knowledge in constitute accounting.In order to collect data and build pecuniary model, Mr Aiman has sought the advice from Rizal, a trained focal point accountant. To begin unwraping a CVP model, Rizal has ga on that pointd the necessary data from Baron advantage Station (BSS) which is the busiest petrol station in the city. The petrol station had four pumps for petrol and superstar for diesel and the core number of nozzle was 20. The model that he would develop could be applied by petrol station operators of the same category. Regarding this case, from the hail-volume-profit analysis, Rizal faeces develop that the breakeven point which is how much sales the petrol station of this eccentric should generate from individu in ally of the fuel products and the Selesamart. Mr. Aiman in like manner croup learn that the splendour of differentiate between situated equal and di splacementing apostrophize so that the petrol stations potful sustain their profitable business and growth.selective information ANALYSIS1. How profitable is the petrol station business?To determine how lucrative is this business, we need to identified eachcomp angiotensin converting enzyment with detailed calculation of the income relation which is does include all the tax receipts acquired, fixed cost and multivariate cost that related to the both type of the business. Firstly, we demand to understand the definition of each component. wintry cost atomic number 18 defined as expenses that remain more or less(prenominal) un channeld irrespective of the rig level or sales taxation, within the relevant period. By definition, there be no fixed costs in the long run, because the long run is a sufficient period of time for all short-run fixed inputs to move variable. inconstant costs ar defined as expenses that vary depending on the output level or sales taxation of a comp either within the relevant period. ecumenically, as a businesss output enlarges, variable costs also development. The more products a business sells, the more funds it spends on materials and manpower to produce those products. We categorized all the expenses into fixed and variable costs and calculate the net profits of Baron Service Station for yr 2009.REVENUEVARIABLE beFIXED COSTSINCOME STATEMENTS (Partial)As describe in the Calculation stated above, the issue forth piece margin of Baron Service Station consists of two parts, which argon fuel business and SelesaMart business. fundamental contribution margin is RM1,166,341.94. Contribution margin of SelesaMart business is about more and less 20% of the total contribution margin, which manner that SelesaMart business is doing well, in addition, profit of SelesaMart pull up stakes be high if it doesnt need to pay a 5% royalty to GEZ. From the income statement we peck interpreted that this business in lucrative eno ugh with a tidy control of expenses and Cost related to the operation, where BSS could generate Nett earn of RM 772,825.94 (Calculation as per as Attachment 1)2. Since the margin on fuel business is very low (6%) comparabilityd to thingumajig store (20%), do you agree that the gismo store is subsidizing the fuel business?Firstly, the profit margin for fuel business is very low if compared to convenience store. The fuel business all involves about 6% of profit margin for year 2010.Profit = Sales cost= nose candy% 94%= 6%This is because GEZ Petrol only gain a a few(prenominal) piece of land of profit from the sales of each cubic decimeter of Ron 95, Ron 97 and diesel. down the stairs is the profit for each lambert of fuel sold by GEZ Petrol Station and the profit margin for each type of fuel. intersectionsPrice per litreCost per litreProfit per litreProfit margin (%)Ron 95RM1.80RM1.6856RM0.11446.36Ron 97RM2.05RM1.9356RM0.11445.58DieselRM1.80RM1.7388RM0.06123.40Besides that, the petrol station also cannot adjoin the outlay even though the political relation ontogenesis the monetary value of fuel. In the short run, the margin per litre would remain the same. For example, if the government announced therewould be a 40 cents increase in the hurt per litre, then, operators also have to pay 40 cents higher. So, the profit margin bequeath not increase.ProductsPrice per litreCost per litreProfit per litreProfit margin (%)Ron 95RM2.20RM2.0856RM0.11445.20Ron 97RM2.45RM2.3356RM0.11444.67DieselRM2.20RM2.1388RM0.06122.78From the above calculation, it shows that the profit margin impart not increase due to increase in price.  Although the profit margin for fuel business is cast down than profit margin for convenience store, but the revenue gain from fuel business is far best(p) than convenience store. For example, from the monthly mediocre sales of RM 1.7 million where the large pile of this amount is come from fuel business (RM 1.6 million fr om the revenue), while only RM 0.1 million comes from convenience store. In addition, in year 2009, the sales revenue of the petrol station is RM 20,682,189.60 and about RM 19,251,897,60 of the amount comes from fuel business which is virtually 93.08% (RM 19,251,897,60/ RM 20,682,189.60) of the revenue. While, only 6.92% (RM 1,430,292/ RM 20,682,189.60) comes from convenience stores. So, in this situation, it show that the fuel business itself are able to sustain the business of petrol station even without convenience store because the convenience store only contributed a little portion of their income.Other than that, most of the customers who come to petrol station are to fuel rather than shop at the convenience store. Only a few customers allow for debase at their convenience store because if someone wants to buy foods or other daily needs, they will favor supermarket as they have more choices compare to convenience store. So, large portion of revenues or income that s trike into the company is from the sales of Ron 95, Ron 97 and Diesel. Even though the profit margin for fuel business is small but the revenue is far desireing concernrupt compared to convenience stores. Therefore, the convenience store is not subsidising the fuel business alternatively both fuel business and convenience store had contributed to sustainability of GEZ Petrol Station.3. If the government raised the RON95 price to RM2.10, do you anticipate the lucrativeness of the business will be eroded?If the government raised the Ron 95 price to RM 2.1 per litre, the profitableness of business will be affected significantly. The changes of RON95 price from RM1.80 to RM2.10 per litre has additive price of RM 0.3 per litre. In parallel, cost per litre of Ron 95 also will increase RM 0.2788 from RM 1.6856 to RM 1.9644 per litre due to estimation of cost on price proportion of 93.64%. meat Net profit for RM 1.8 (Ron 95) is RM 766,706.02 and had increase to RM 924,046.16 when Ron 95 price increased to RM 2.1. Net profit margin had increase from 3.71% to 3.98%. For scupper- even Analysis, the increase of Ron95 price has indicate a better result which only required 3187559.208 litres/ RM 6,936,231.66 compared to 3618188.562 litres/ RM 7,015,784.34 to achieve zero profit. In overall, rise of Ron95 price by government will benefit GEZ petro stations financial performance. It has higher profitability and capable to achieve agree Even Point with a lower output level compared to previous price which RM 1.8 per litre for Ron 95. Below are the changes of GEZ financial performance if Ron95 price changed.RON95 (79%)**Assuming the portion of fixed cost between Fuel business and Selesa Mart is based on the reasonable sales of 2009 Price per litreRM1.80Total Fixed Cost (RON95) stack between fuel business and SelesaSalariesRM195,720.02= 1.6/1.7 =94.12%Utility CostRM35,550.0094.12% of amount in fixed cost for fuel businessRentalRM5,487.385.88% of amount in fixed cost fo r Selesa MartInsurance PremiumRM1,427.61StationeriesRM1,784.52Total Fixed CostRM239,969.53RON 95Fixed Cost -SalariesAmountSalary(RM)Total per yearPortionFixed cost- SalariesStation Manager13206384720.9412*0.7928605.78Supervisor11674200880.7915869.52Cashier3950342000.7927018Crew128121169280.7992373.12Clerk1960115200.9412*0.798565.67General Worker2805193200.9412*0.7914365.35Security Guard11000120000.9412*0.798922.58Total195720.02Input changed (Exhibit 3)Original PriceNew Price4. If a honorable mention carte sale is imposed from 40% to 20%, what is the effect on overall profitability?Nowadays more and more people are utilise credit menu in their daily life. People prefer credit cards because they are convenient to use and it is easier to take them kinda of carrying a lot of cash. And if wallet or purse is stolen, we can plain call the creditor and close the credit card account before anyone uses the card. In GEZ petrol station, petrol operators had to face was the increasing cost of credit card fees paid to bank as more and more of their customers were starting using credits cards. When a driver pays for gas with a credit card, GEZ petrol station must pay an average 1% of the sales price to the bank to process the payments.GEZ petrol station have accounted that the credit card sales are almost 40% of their total sales. Research are made to the Baron Service Stations ( BSS) , a petrol station that was located in a city, in the northern region of Malaysia. It was one of the busiest petrol stations in the city. In year 2009, BSS generated sales revenue of RM 19,251,897.60, 40% of the revenue RM 7,700,759.04 was come from credit card sales and the bank will charge RM 77007.59 from the credit card sales. Those fees are so high, it already slim profit margins and made it hard for stations to gravel money on gas sales. Otherwise when the credit card sales is reduce to 20% of the revenue RM 3,850,379.52 was come from credit card sales and the bank will charge RM 3,850,3.80 from the credit card sales. For details as downstairs credit rating Card Fees (40%)ProductSales (Litres)Price/LitresTotal RevenuesRon 958,459,604.001.8015,227,287.20Ron 97174,576.002.05357,880.80Diesel2,037,072.001.803,666,729.6019,251,897.60 custom of opinion Card40%7,700,759.04 credit entry Card Fees Charges1%Credit Card Fees77,007.59Credit Card Fees (20%)ProductSales (Litres)Price/LitresTotal RevenuesRon 958,459,604.001.8015,227,287.20Ron 97174,576.002.05357,880.80Diesel2,037,072.001.803,666,729.6019,251,897.60Usage of Credit Card20%3,850,379.52Credit Card Fees Charges1%Credit Card Fees38,503.80Baron Service StationPartial of Income Statement for grade Ended 2009 (20%)Fuel transactionSelesa MartRevenue19,251,897.60Revenue1,430,292.00(-) Variable CostRaw Material Cost18,139,478.60Evaporation Losses83,613.27COGS1,144,233.60Credit Card Fees38,503.80Royalty71,514.60Contribution Margin990,301.93Contribution Margin214,543.80Total Contribution Margin1,204,845.73(-) Fi xed Cost393,516.00Nett Profit811,329.73 base on the calculation above, when the credit card sales been adjusted from 40% to 20% it will affect the overall profitability of the company. The income statement showed the increase of net profit from RM 772,825.94 to RM 811,329.73 of RM 38,503.79.When the credit card sales step-down, a 1% fees was charged by the banks also will reduce and this effect the variable cost for the company from before change cost is RM 18,300,099.46 to after change cost of RM 18,261,595.67. The departure between both of the cost and company managed to economize is RM 38,503.79.The increasing of the amount in using credit card to make payment in the petrol station will also increase the cost of credit card fees that need to pay to banks, indirectly it will give effect to the profitability of the station. The profit of the station will decrease due to the increasing of cost. If increasing of customers chooses to make payment by cash instead of credit card, then the profitability of the petrol station will increases, because the extra cost on the credit card sales that they jut out will be reduce. To cover the problem, petrol stations can shift the cost of credit card charge by charges back the customer when they use cards. However petrol stations need to take take chances that they maybe will losing customer. Customer maybe will decide to change to other petrol stations that do not have any charge when they use credit card to make payment. Petrol station also can offer a cash-only discount. This may attract more customer make payment by using cash.5. What is the beguile nates to allocate the cashier cost between four products Ron 95, Ron 97, diesel and SelesaMart?To keep apart the costs of products, we use cost allocation as it is a scape that can helps manager to track the cost that associated more efficient. Costs are allocated to obtain desired motivation because it some propagation made to influence management behaviour and thus promote goal congruence and managerial effort. Instead, it is apply to compute income and asset valuations and to justify costs or obtain reimbursement because sometimes prices are based directly on costs, or it may be necessary to justify an accepted bid. From the information wedded in the case, GEZ petrol station conducted two main business which is the fuel business and the convenience store business, known as SelesaMart. Since GEZ provide joint provide, thus the clutch basis is sales value at split-off point. The table shown below is the thickset of monthly average sales.PRODUCTSSALES PROPORTIONAMOUNTFuel Business94.12%RM 1,600,000Petrol Ron 9579%RM 1,264,000Petrol Ron 972%RM 32,000Diesel19%RM 304,000SelesaMart5.88%RM 100,000AVERAGE SALES (monthly)100%RM 1, 700,000 fudge 5.1 Monthly average sales in 2009The total monthly average sales given is RM 1,700,000 with RM 1,600,000 was generated from the fuel business and the remaining from SelesaMart which in RM100,000. The h ighest contribution in fuel business in Petrol Ron 95 with RM 1,264,000 and follow with Diesel which is RM 304,000 then Petrol Ron 97 with RM 32,000. Then, we need to calculate total revenue for R95, R97, Diesel and Selesamart. Thus we multiply sales per litre with price per litre to get the amount of revenue. As stated in the case the sales revenue that BSS generated is RM20,682,189.60 that are comprise RM19,251,897.60 of fuel sales and RM1,430,292 of SelesaMart sales.The calculation can be summarizes as the table shown below R95R97DieselSelesaMartSales (Litres)8,459,604174,5762,037,072Price per litre (RM)1.802.051.80RevenueRM15,227,287.20RM357,880.80RM3,666,729.60RM1,430,292.00Percentage (%)73.63%1.73%17.73%6.92%Table 5.2 Total revenue and doweryFor BSS, they can allocate more cost to Petrol Ron 95 since it contribute the highest revenue which is RM 15,277,287.20 continue with Diesel with RM 3,666,729.60. For Petrol Ron 97 and SalesaMart, BSS can allocate less cost since it contr ibuted only RM357,880.80 and RM1,430,292. In BSS there were two cashiers working at the sales counter. One will concentrate on the fuel transactions, and one for the shop, even though they handle both transactions at times and overall there were 6 cashiers working for BSS. Monthly salary per soul for the cashier is RM950. So BSS shall pay RM5,700 to their 6 cashiers and RM68, 400 in annually. The hold basis to allocate the cashier cost between the four products RON95, RON97, diesel and SelesaMart is we metrical the revenue for the four products and we divided with the total sales to find the percentage for each products. So the percentage for product RON95 is 73.63%, RON97 is 1.73%, diesel is 17.73% and SelesaMart with 6.92%.The total revenue for Petrol Ron 95, Petrol Ron 97, Diesel and SelesaMart is RM20, 682,189.60. After we find the percentage, we calculated the cashier cost for each product. To find the cashier cost, we multiple the percentage with the total annual salary for the cashier which is RM 68,400(RM 950 x 6 x 12). The result is, for the product RON95 the cashier cost is RM50, 359.58 followed by RON97 is RM1, 183.58, diesel is RM12, 126.58 and SelesaMart is RM4, 730.25. The total cashier cost is RM68, 400. The calculations can be summarize as shown in table below R95R97DieselSelesaMartPercentage (%)73.63%1.73%17.73%6.92%Cashier CostRM50,359.58RM1,183.58RM12,126.58RM4,730.25Table 5.3 Percentage and cashier costThe choice of method for allocating special K costs should depend on the ease of application, the perceived quality of information account to external parties, and the perceived fairness of the allocation when multiple product managers are responsible for joint products. However, as discussed above, the allocation of common costs is arbitrary, and no method is conceptually preferable to any other method. All methods of allocating common costs across joint products are generally useless for operational, marketing, and product pricing decisions.6. Is public utility company cost fixed or variable? What difference does it make to the breakeven point of Ron 95 if it is classified as i) fixed cost, and ii) variable cost? In our opinion utility cost is fixed cost. This is because, the cost will be relatively the same as it was utilise for all the time. This cost wont effect the unit sold even though it not used.Utility cost as FCUtility cost as VCBEP (RM)5,024,702.714,154,075.59BEP (UNIT)2,791,501.502,307,819.77If the utility is fixed cost, the Break Even Point in RM is higher compare to the utility cost as variable cost. Same goes to the Break Even Point in Unit, which is the utility as fixed cost is higher compare to the utility as variable cost.CONCLUSIONRegarding this case, from the cost-volume-profit analysis, Rizal can find that the breakeven point which is how much sales the petrol station of this type should generate from each of the fuel products and the Selesamart. Mr. Aiman also can learn that the wid eness of differentiate between fixed cost and variable cost so that the petrol stations can sustain their profitable business and growth. If the utility is fixed cost, the Break Even Point in RM is higher compare to the utility cost as variable cost which is RM5,024,702.71 compared to RM4,154,075.59 . Same goes to the Break Even Point in Unit, which is the utility as fixed cost is higher , 2,791,501.50 compare to the utility as variable cost 2,307,819.77 To narrow the costs of products, we use cost allocation as it is a irradiation that can helps manager to track the cost that associated more efficient.Costs are allocated to obtain desired motivation because it sometimes made to influence management behaviour and thus promote goal congruence and managerial effort. Instead, it is used to compute income and asset valuations and to justify costs or obtain reimbursement because sometimes prices are based directly on costs, or it may be necessary to justify an accepted bid. From th e information given in the case, GEZ petrol station conducted two main business which is the fuel business and the convenience store business, known as SelesaMart. Since GEZ provide joint provide, thus the appropriate basis is sales value at split-off point