1. Everyday Bebekoh Co. is processing 200 kilos of a certain raw materials that produces 80 kilos of product AY and 60 kilos of product AZ. It incurs a total cost of P25,000 which it allocates P10,000 to AY and P15,000 to AZ. Product AY can be sold for P18,000 but it can be processed further to become BY at a cost of P5,000 and now can be sold for P20,000. Product AZ can be sold for P20,000 but it can be processed further to become BZ at a cost of P5,000 and now can be sold for P26,000.

Required:

Prepare an incremental analysis to determine whether Bebekoh will sell AY and AZ or BY and BZ.

2. Mibebe Co. has a factory machine with a book value of P90,000 and a remaining useful life of P3 years. A supplier is offering a new machine for P120,000. The new machine has a useful life of 3 years with no salvage value. Should the company accept the offer, variable manufacturing cost from P70,000 will become P50,000.

Required:

Prepare an analysis showing whether the old machine will be retained or replaced.

Assuming that the old machine can be traded for P75,000, what will be the decision? Justify your answer.

3. MyBaby Fashions creates and sells infants products. One of its lines, the infants formal wear has sales of P75,000; variable cost of P60,000 and fixed cost of P25,000. If this line is eliminated, all of the fixed cost will remain.

Required:

Prepare an analysis showing whether the infants formal wear should be eliminated.