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Paul Company: Shutdown Cost 820,000 Shutdown Savings 80,000 Shutdown Point

The document contains financial information for Paul Company, including: - Monthly fixed costs of ₱150,000 - Fixed costs that could be avoided during a 6 month shutdown of ₱70,000 - Additional shutdown costs of ₱40,000 - Estimated restart costs of ₱100,000 - Current membership demand of 3,600 with a potential 12.5% reduction if operations continue The conclusion is that the company should continue operations since shutting down would result in a net loss of ₱820,000 compared to potential savings of only ₱80,000 from shutting down.

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74 views6 pages

Paul Company: Shutdown Cost 820,000 Shutdown Savings 80,000 Shutdown Point

The document contains financial information for Paul Company, including: - Monthly fixed costs of ₱150,000 - Fixed costs that could be avoided during a 6 month shutdown of ₱70,000 - Additional shutdown costs of ₱40,000 - Estimated restart costs of ₱100,000 - Current membership demand of 3,600 with a potential 12.5% reduction if operations continue The conclusion is that the company should continue operations since shutting down would result in a net loss of ₱820,000 compared to potential savings of only ₱80,000 from shutting down.

Uploaded by

Betchang Aquino
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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PAUL COMPANY

Selling Price per Membership


₱400
Variable Cost per Membership
270
Contribution Margin
130
Fixed Cost per Month
₱150,000
Fixed Cost avoided if stop operations 70,000

Additional Cost during the shutdown period for six (6) months 40,000

Estimated restarting costs


₱100,000
Demand of club membership 3,600

Reduction in membership SP if continued 12.50%

Solution

SHUTDOWN COST ₱820,000


SHUTDOWN SAVINGS
₱80,000
SHUTDOWN POINT
615

Therefore the company should continue their operations


because if they will shutdown the company will incur an
additional loss
ABC Company
SALES VALUE AT SPLIT ADDITIONAL PROCESSING
PRODUCT FINAL SALES VALUE
OFF COSTS
A 300,000 130,000 420,000
B 120,000 100,000 230,000
C 250,000 140,000 400,000

670,000 370,000 1,050,000

A. Which product/s should be sold at split-off point and be processed further


QUESTION:
respectively?

Product A and Product B should be sold at the splits-off point and Product C should be processed further

SOLUTION

Product A Product B Product C


Finals Sales Value 420,000 230,000 400,000

Sales Value at Split-off 300,000 120,000 250,000

Increase in Sales Value 120,000 110,000 150,000

Additional Costs 130,000 100,000 140,000

Differential Income -10,000 10,000 10,000

B. If the alternative were to sell at the split-off point or to process further all the
QUESTION: products, which alternative would be recommended?

To process further is a better alternative because the total differential income for all the products is 10,000
MAXWELL COMPANY
Cm per Unit Machine hr. per unit of product

Product A 5 2.5

Product B 3 3

Product C 4 1

SOLUTION

Question A. Determine the contribution margin per hour

CM per Unit Machine Hour CM per Machine Hour

Product A 5 2.5 2

Product B 3 3 1

Product C 4 1 4

C. Maximum Contribution Margin

Units of Product Machine Hours CM per Machine Hour

Product C 10,000 10,000.00 4

Product A 4,000 10,000.00 2

Product B 6,000 18,000.00 1

20,000 38,000.00

The company must created the most profitable product which is product C that has
a 1hour machine hour in in 10,000 units.
Ranking

2nd

3rd

1st

Total CM

40,000.00

20,000.00

18,000.00

78,000.00
Trask Industries Inc.

Old Machine with a Book Value 150,000

Old Machine will be replaced 375,000

Annual Operating Cost 180,000

No disposal year 3

Disposed Value 60,000

Solution

Cost of the new machine 375,000


The company should retain the machine since the t
relevant cost to replace is greater than cost to reta
Add: Operating Costs 243,000

Less: Disposed value of old machine 60,000

Reconditioning cost of old machine 0

Total relevant cost to replace 558,000

Total relevant cost to retain 540,000

Differential Cost 18,000


any should retain the machine since the total
ost to replace is greater than cost to retain.

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