SESSION 2013/2014 BKAL3063 INTEGRATED CADE STUDY ”CASE 2: LUOTANG POWER : VARIANCES EXPLAINED” GROUP : L (3) PREPARED FOR: PROF. MADYA. DR. ENGKU ISMAIL B. ENGKU ALI PREPARED BY: NURIN NAZMIN BT AHMAD FISOL 207704 TENGKU NADIRAH BT TENGKU DANIEL 207733 SABIRAH BT ABDULLAH 207783 NAJIHA BT MOHD MISBAHHUDDIN 207785 NUR AMALINA BT ABD GHANI 207791 SUBMISSION DATE : 06 OCTOBER 2013

Table of Contents 1.0 INTRODUCTION 4 2.0 MAIN ISSUE 5 3.0 FINDINGS 7 4.0 STANDARD COST 12 5.0 RECOMMENDATION 13 6.0 CONCLUSION 15

1.0 INTRODUCTION Tan Min Yi who was the general manager of Luotang Power, a coal-fired power plant located in central China. He should make a presentation to the Board of Directors of his parent company, China Hua Tong Power (HT Power). Tan knew that his company had performed well during that year, both plant availability and fuel economy improved over the previous year but it just didn’t show up in the financial report. Hubei Provincial Power Company (HPPC) was the primary customer of Luotang that had made a contract for a minimum annual purchase of total electricity of 3,000,000MWh every year. However, there had been limited opportunity to sell energy above the contractual minimum, either to HPPC or others. If the amount of sell would be reduced, the contract required that Luotang sell amounts in excess of minimum annual purchase at approximately 65% of regular price.
Luotang also made a contract with coal supplier, Pingdingshan. The company had been successful at selling excess electricity to the power plant but over the past 12 months, demand has decreased. This happen because by falling revenues were concentrate by the high debt burden that the project carried, with approximately 80 percent of the initial construction cost being finance by debt.
In this case of Luatong