5 DIFFERNTIAL COST ANALYSIS / DECISION MAKING 5.1The Barangka Mig. Co. produces and sells only one product, "Sashy", in Metro Manila. The following data are given thereon: Per Per Unit Annum Direct materials costs P Direct labor cost Variable factory overhead Fixed factory overhead P100,000 Variable operating expenses 2 Fixed operating expenses 60,000 Selling price 35 Sales volume..... ..10,000 units Q53 The management intends to raise the unit selling raise to P38 but experts a 20% decline in sales volume. How much must be the effect of this price adjustment on operating income? a) Decrease from P50,000 to P 8,000 or by P42,000. b) Decrease from P50,000 to P32,000 or by P18,000. c) Increase from P50,000 to P80,000 or by P30,000. d) None of the above 5.2 ACCEPT OR REJECT A SPECIAL ORDER Q54 An order for 3,000 units has been received from the dealer in Davao City at P30 per unit. FOB - shipping point. Packing and shipping costs related to this order are estimated at P1,200. If accepted, what must be the effect of this special order on operating income? a) Increase by P85,000 b) Decrease by P60,000 c) Increase P52,800 d) None of the above 5.3 MAKE OR BUY Another manufacturer, Sangosumax Corp., has offered to manufacture "Sasby" for P20. If this offer were accepted, Baranka Mfg. Co. expects to save 30% in fixed factory overhead. Q55. If the offer is accepted, operating income would a)decrease by P50,000 b) increase by P45,000 c) increase P50,000 d) None of these 5.5 SELL OR PROCESS FURTHER The following data are given on the three products of ABC Corp.: Semi- processed Further Processing Sales Value Accumulated Sales Value Additional Cost Cost Product A P60,000 P20,000 P100,000 P25,000 Product B 40,000 10.000 80.000 40.000 Product C 50,000 25,000 70,000 25,000 Q56. Which should be processed further? a) Product A b) Product B c) Product C d) All of them