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Decision Making-Sample Problems

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Mae Polison Mante
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45 views2 pages

Decision Making-Sample Problems

Uploaded by

Mae Polison Mante
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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ACCOUNTING 13N

Decision Making

Problems :

1. Islibiditz Mfg. Corp. is using 10,000 units of Part No. 8 as a component to assemble one of its
products. It costs the company P18 per unit to produce it internally, computed as follows:
Direct materials . . . P 45,000
Direct labor . . . . 50,000
Variable overhead . . . 40,000
Fixed overhead . . . 45,000
Total Cost . . . P180,000
vvvvvvvvvv
An outside vendor has just offered to supply the part for P16 per unit.

Required: For each of the independent cases below, determine the Relevant Cost to Make and the
Relevant Cost to Buy and answer each of the independent questions with reasons:
a. Should the Islibiditz make or buy the part?
b. What would be your decision if the space used to manufacture Part No. 8 can be leased for
P30,000 if it will be purchased from outside suppliers?
c. What would be your decision if the corp. stops producing this part, one-third of the fixed overhead
would be avoided, but the vacant space will not be rented?

2. Solbatamol Processing Company has 2,000 hours of available plant capacity to manufacture
products V and W. Data on the two products are given below:
V W
Selling price per unit P 50 P 75
Variable cost per unit 44 67
Contribution margin per unit P 6 P 8
vvvvvvv vvvvvv

Time to produce each unit 1/3 hour 1/2 hour

Required: Determine the following:


a. Which product should be produced and what is the contribution margin? Reasons . . .
b. What would be the maximum contribution margin if the market will accept only 2,400 units of
product V and 3,000 units of product W? Reasons . . .

3. The Spartan Company has an annual plant capacity of 25,000 units. Predicted data on sales and
costs are given below.
Sales (normal, 20,000 units). . . P 1,000,000
Manufacturing costs:
Variable (DM, DL and O.H.) . P 40 per unit
Fixed overhead . . . P 30,000
Selling and administrative expenses:
Variable (sales commission-P1 per unit) P 2 per unit
Fixed . . . . . P 7,000
A special order has been received from outside for 4,000 units at a selling price of P45 each.
The usual sales commission on this order will be reduced by one-half.

Required:
1. Should the company accept the order? Reasons . . .
2. If the special order is for 8,000 units, should the company accept the order? Reasons . . .

4. Greta Mfg. Co. provides you with the following information on its product :
Unit selling price . . .P 60
Unit variable cost and expenses . 40
Fixed costs and expenses . . 20,000
It has been estimated that during a temporary shutdown, fixed costs and expenses can be
reduced by 25% although additional costs of maintenance amounting to P 2,000 and security of
P2,500 has to be incurred.
Required : Determine the following :
a. The total shutdown costs.
b. The shutdown point.
c. How may units must be sold to avoid a loss? Explain your reasons…

5. Data concerning four product lines are given below :


Product lines
A B C D
Selling price per unit. . P 13 P 20 P 5 P 25
Variable cost per unit . 6 5 2 16
Allocated common costs/unit 4 8 1 3
Units produced per hour . 4 units 2 units 8 units 3 units
Maximum sales limit in units. 5,000 5,000 10,000 None
Minimum production req. (units) 1,000 None 2,000 1,200

There are 6,000 total hours available. Minimum production requirements are needed to meet
existing sales contracts. Marketing has provided a “best estimate” of the maximum sales we can
expect for each product, including the minimums.

Required : Based on the above data, choose the best combination. Reasons . . .

6. The factory and offices of Luca Mfg. Corp. is near the highway which is to undergo repairs for a
period of 5 months. Inasmuch as its sales during that period have been estimated at P12,000
only, the management is contemplating on closing the factory during the said period. An analysis
of the income statement of the preceding year as submitted to the management follows :

Sales . . . . . . P120,000
Less : Variable cost of sales . P66,000
Variable operating expenses 18,000
Fixed factory overhead . 20,000
Fixed operating expenses . 10,000 114,000
Operating Income . . . . . P 6,000
========
A temporary shutdown for 5 months is expected to reduce fixed costs and expenses by 40%
but additional cost of security and maintenance of P1,400 has to be incurred.

Required : Determine the following :


a. The net income or loss if Luca will operate during the 5 month period.
b. The total shutdown costs.
c. The shutdown point.
d. Should Luca continue operations or shutdown? Explain with supporting proof.

- end of examination -

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