A.Brew-Me-Anytime Company is introducing a new coffee in its stores and must decide what price to set for the coffee beans. An estimated demand schedule for the product follows: Price One-pound units demanded P 5 80,000 6 72,000 7 56,000 8 48,000 9 36,000 10 30,000 Estimated costs follow: Variable manufacturing costs P2 per unit Fixed manufacturing costs P 40,000 per year Variable selling and administrative costs P1 per unit Fixed selling and administrative costs P 20,000 per year Required:

(Support your answers by showing your computations.)

1. Prepare a schedule showing management the total revenue, total cost, and total profit or loss for each selling price.

2. Which price do you recommend to the management of Brew-Me-Anytime? Explain your answer.

B.Heavy Duty Company normally produces and sells 30,000 units of E30 each month. E30 is a small electrical relay used in automotive industry as a component part in various products. The selling price is P22 per unit, variable costs are P14 per unit, fixed manufacturing overhead costs total P 150,000 per month, and fixed selling costs total P 30,000 per month. Employment-contract strikes in the companies that purchase the bulk of the E30 have caused companys sales to temporarily drop to only 9,000 units per month. Heavy Duty Company estimates that the strikes will last for about two months, after which time sales of E30 should return to normal. Due to the current low level of sales, Heavy Duty Company is thinking about closing the closing down its own plant during the two months strikes are on. If the company does close down its plant, it is estimated that fixed manufacturing overhead costs can be reduced by 10%. Start-up costs at the end of the shutdown period would total P 8,000. Since Heavy Duty uses JIT system, no inventories are on hand. Required:

(Support your answers by showing your computations.)

1. Would you recommend that the plant should be closed for two months? Explain.

2. At what sales level for the two-month period should

C.Bakers Choice Manufacturing manufactures two products: Rolling Pin and Baking Tray. Contribution margin per unit is determined as follows: Rolling Pin Baking Tray Revenue P 130 P 80 Variable Costs (70) (38) Contribution Margin P 60 P 42 Total demand for Rolling Pin is 16,000 units and for Baking Tray is 8,000 units. Machine hour is a scarce resource. 42,000 machine hours are available during the year. Rolling pin requires 6 machine hours per unit while baking tray requires 3 machine hours per unit.

Required: How many units does of rolling pin and baking tray should Bakers Choice produce to optimize profit? (Show your computations.)

D.Following are sales and other operating data for the three products made and sold by Legacy Corporation: Product A B C Total Sales P 600,000 P 300,000 P 200,000 P 1,100,000 Less: Manufacturing costs:

Fixed 60,000 20,000 60,000 140,000

Variable 280,000 220,000 100,000 600,000

Selling and administrative expenses:

Fixed 20,000 20,000 12,000 52,000

Variable 40,000 20,000 30,000 90,000

Total costs P 400,000 P 280,000 P 202,000 P 882,000

Net income P 200,000 P 20,000 P (2,000) P 218,000

Required: (Support your answers by showing your computations.)

1. In view of the net loss for Product C, Legacys management is considering dropping that product. All variable costs are direct costs and would be eliminated if Product C were dropped. Fixed costs are indirect costs; no fixed costs would be eliminated. Assume that the space used to produce Product C would be left idle.

2. Would you recommend the elimination of Product C? Give supporting computations.

E.Skate-Right Company, a skateboard manufacturer, is currently operating at 60% capacity and producing about 8,000 units a year. To use more capacity, the manager has been considering the research and development departments suggestion that the company manufacture its own wheels. Currently, the company purchases wheels from a supplier at a unit price of P20. (Each unit is a set of wheels for a skateboard.) Estimates show the company can manufacture its own wheels at P10 for direct materials costs and P4 for direct labor cost per unit. The variable factory overhead is P1 per unit. The companys accountants would probably allocate another P6 per unit to the wheels. Required:

(Support your answers by showing your computations.)

1. Should Skate-Right make or buy the wheels?

2. Suppose Skate-Right could rent out the factory space needed to make the wheels for P30,000 a month. How would this affect your decision in (a), if at all?

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